Submitted oligopoly and monopoly. Perfect competition indicates a

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Submitted by

42206(single diploma) – Amal Yusupov

 

Every branch has its own market
specificity – the production of different goods, a various industry of sellers,
the size of enterprises, the features of innovation, the composition and
specificity of consumers.

In
microeconomics, the most typical market structures are generalized and the conduct
of manufacturing firms is studied, leading to the receipt of the greatest
benefits for them-the receipt of the maximum profit. At the heart of these
generalizations, specific recommendations are improved that have important
applied importance in the choice of the firm’s behavior strategy in specific
market features.

The object of
the evaluation of competition is the branch. For instance, a group of
competitors producing goods/services and directly competing with each other.
The purpose of the analysis is to identify the competitive advantages of the
firm and the choice of a competition strategy.

There are four main market structures: perfect
competition, monopolistic competition, oligopoly and monopoly.

Perfect
competition indicates a market structure, in which a plenty amount of small companies
compete against each other. Moreover, firms do not have a significant impact on

power of
market. Consequently, the manufacture generally produces the absolute level of
production, which in turn lead to market has
many buyers and producers trading homogenous products so that each buyer and
seller is a price taker.

Perfect
competition relies on the following elements:

·        
All small firms are
focused to maximize profits.

·        
The goods which
offered by the different sellers are largely the typical.

·        
There are not specific
preferences between different sellers. It does not matter for the customer from
which firms buy the products.

·        
All firms have free
access and exit to the market.

·        
There is perfect
information and knowledge about homogenous products.

At present,
according to Nelson statistics (2017) 3885567619 out of the global population
7519028970 people use the internet. Approximately 3.9 billion internet users
are both producers and consumers. The above mentioned example demonstrates that
the internet is a market, where a myriads number of consumers/producers operate
without any influence on market power which in turn lead to equal opportunities
in this market, exemplifying one of the features of perfect competition.

     Example of perfect
competition.

            Internet
related industries. The internet has a strong influence on perfect competition
market due to the fact that the internet has made the way of comparison and
check prices easily, quickly and efficiently (perfect information). Consequently,
selling any kinds of good on the internet through a service such as Alibaba,
Aliexpress and E-bay is extremely similar to perfect competition. For instance,
it is becoming more and more popular to use the above mentioned online
magazines to compare prices of any types of product and buy cheaper ones.

Like perfect
competition online magazines namely Alibaba, Aliexpress and E-bay relies on the
following elements:

·        
There also a large
number of sellers.

·        
Perfect information
and knowledge. It is easy to compare the prices of goods.

·        
There are no
significant barriers to entry and to exit to the market.

 

Monopolistic
competition is a type of market structure consisting of many small companies
that produce differentiated products and free entry to the market and exit from
the market. The products of these firms are close, however not completely interchangeable, it means that there
is a difference in price, features, branding and marketing.

By differentiating the product, the /monopolistic competitor
reduces price elasticity. Raising the price, the monopolistic competitor is not
lost of all consumers, as it happens in the conditions of perfect competition.
The market is somewhat narrowed, but there remain those who steadily prefer the
products of only this manufacturer.

 

Monopolistic
competition relies on the following elements:

·        
availability of
many sellers and buyers (the market consists of a large number of independent
firms and buyers);

·        
free access to and
exit from the market (no barriers that keep new firms from entering the market
leaving the market);

·        
Differentiated, varied
products offered by competing firms. Moreover, products may differ from one
another in one or a number of properties (for example, in chemical
composition);

·        
perfect awareness
of sellers and buyers about market conditions;

·        
influence on the
price level, but in a rather narrow framework

 

Example of monopolistic competition:

One of the most convenient example for the
monopolistic competition is washing powder.

There are
quite a few different companies in Poland such as, Ariel, Tide, Ares, Perwoll,
Lenor, Vizir, Perlux, Maxi trat, FF, Persil, Losk, Surf, Bio Power, Origami and
so forth. As a result, for the production of new
varieties of detergent powders it is not required to create a large enterprise.
Therefore, if firms producing powders will receive large economic profits, this
will lead to the inflow of new firms into the industry. New firms will offer
consumers washing powder of new brands, sometimes not much different from those
already produced in a new package, another color or designed for washing
different types of fabrics.

The market of oligopoly is characterized by the
presence on the market of a minimal number of large sellers, whose goods can be
either homogeneous or differentiated. The entrance to the oligopolistic market
is extremely difficult, the entrance barriers are very high. Control of
individual companies over prices is limited. Examples of oligopoly can serve
the automotive market, cellular communication markets, household appliances,
metals. The difference of the oligopoly is that the decisions of the companies
about the prices for the goods and the volumes of its supply are
interdependent. The situation on the market depends heavily on how companies
react when the price of a product changes with one of the market participants.
Two types of reaction are possible: the first is reaction ,when other
oligopolists agree with the new price and set prices for their goods at the
same level (follow the initiator of the price change);the second ignoring
reaction – other oligopolists ignore the price change by the initiating firm
and maintain the previous level of prices for their products. Thus, for the
oligopoly market, a broken demand curve is characteristic.

Features and
conditions of oligopoly:

·        
the number of
sellers in the industry: small;

·        
size of firms:
large;

·        
number of
customers: large;

·        
goods: homogeneous
or differentiated;

·        
control over the
price: significant;

·        
access to market
information: difficult;

·        
barriers to entry
into the industry: high;

·        
methods of
competition: non-price competition, very limited price.

Cellular
services today are the most profitable and rapidly growing segment of the
telecommunications market in Russia. A small number of sellers dominate the
Russian cellular market, which is one of the most obvious example for
oligopoly. The leading players here are MTS, Megafon, Beeline, Tele2. A feature
of the Russian cellular market is that it is characterized by a high level of
competition. MTS successfully relies on the price leadership strategy;
Megaphone applies the strategy of minimum prices for services; Beeline relies
on a pricing strategy based on individual costs; Tele2 provides the widest
range of tariff plans at low prices.

 

Monopoly
occurs when an enterprise produces products for which there is no substitute. The
opposite of perfect competition is a pure monopoly – a market where only one
firm operates, which by virtue of this circumstance can influence the market
equilibrium and market price.

Monopoly – a
market structure that meets the following conditions:

·        
The release of
goods throughout the industry is controlled by one seller of this product, which
means that the monopolist is the only producer of this good and personifies the
entire industry.

·        
The good produced
by the monopolist is special in its own way and has no close substitutes.

·        
Monopoly is
completely closed to enter the industry of new firms, therefore in the
conditions of monopoly there is no any competitive struggle.

The most
prominent example of a pure monopoly in the United States is the United States
Postal Service (USPS). People have all heard that the Postal Service is losing
money. According to a report published in 2014, the USPS lost a staggering $2
billion dollars in just 3 months, despite cutbacks in service. With such a
glaring need for improved operations, you might wonder why other businesses
haven’t entered the market to compete with the Post Office for first-class and
standard mail delivery. Moreover, it should be noticed that the Post Office is
a government-protected monopoly. The Private Express Statutes established in
1792 gives the USPS exclusive rights to deliver letters for a fee, with very
few exceptions.  Letters that are
designated to be ‘extremely urgent’ may be delivered by other providers but
even then, the Post Office is allowed to set the minimum price that the private
competition must charge. This is an example of a legal barrier to
entering the market.

In conclusion, there are four main kinds of market structure: perfect
competition, monopolistic competition, oligopoly and monopoly. The perfect
competition illustrates a market structure, where myriads of small firms
contend with each other, while monopolistic competition also has a lot of small
firms, which compete with each other with the help of varied products. Besides,
Oligopoly demonstrates a marker structure with small number of firms. Monopoly
is the opposite of perfect competition, where only one firm controls all
market.

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