Introduction
Definitions of • Perfect competition • Monopoly • Oligopoly
Perfect Competition: - All Firms sell an identical product - All firms are price takers - All firms have a relatively small market share - Buyers know the nature of the product being sold and the prices charged by each firm. - The industry is characterised by freedom of entry and exit.
Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry.
Monopoly: - Many buyers - Only one seller - e.g. not a price taker - Perfect information - Restricted entry and possibly exit
Monopoly is a market structure in which there is a sole supplier of a good, service or resource that has no close substitutes and in which there is a barrier preventing the entry of new firms into the industry.
Oligopoly: - A few firms selling a similar product - Each firm produces branded products - There is likely to be significant entry barriers in to the market in the long run which allows firms to make above average profits.- - Businesses have to take into account likely actions of rivals to any change in price and output.
An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). Firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) and there are also barriers to entry. Another important characteristic of an oligopoly is interdependence between firms. This means that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions. This creates uncertainty in such markets - which economists seek to model through the use of game theory.
You May Also Find These Documents Helpful
-
Oligopoly is a market structure containing a small number of relatively large firms that often produce slightly differentiated output and with significant barriers to entry. Monopoly is a market structure containing a single firm that produces a good with no close substitutes and with significant barriers to entry. While it might seem as though the difference between oligopoly and monopoly is clear cut, such is not always the case.…
- 348 Words
- 2 Pages
Satisfactory Essays -
Monopolistic competition describes a marketplace consisting of a great number of sellers offering a differentiated product, which…
- 2282 Words
- 10 Pages
Better Essays -
A monopoly is a situation in which there is a single producer or seller of a product for which there are not close substitutes. The most common example of a natural monopoly would be an Electric (power) company. Power companies are characterized by very large costs for their infrastructure making it inefficient to have more than a single firm in a region because of the high cost of duplicating facilities needed to (Colander, 2013).…
- 1201 Words
- 4 Pages
Powerful Essays -
Oligopoly industries having a few large firms gain market power. In oligopoly industries government regulation and enforcement of industrial and social regulation curtail the few firms controlling the market from the possibility of setting unfair prices, limiting competition and collusion resulting in low quality, lower production and higher prices.…
- 729 Words
- 3 Pages
Good Essays -
A government monopoly is a monopoly based on ownership or control of a manufacturing method or process.…
- 1214 Words
- 5 Pages
Powerful Essays -
Monopoly’s market type occurs when there is one firm providing a unique manufactured good without similar substitutes. Entry into a monopoly type market is difficult and nonprice competition is unnecessary. “Nonprice competition involves firms trying to gain an advantage over one another by differentiating their products (Keat and Young, 2009).” Becoming the only business providing the service or product means that the public specifically has to purchase from this one company. An example of a monopoly would be the Public Utility Commission (PUC) in California. Unlike Texas, where residents have many companies to choose from for electricity, California receives their power bill from one central company.…
- 2539 Words
- 11 Pages
Best Essays -
Text materials Amacher, R., & Pate, J. (2013) chapter 9 expound on the characteristic of perfect competition. the text stretches the importance of the six basic assumptions for the model of perfect competition which are large number of sellers, large number of buyers, homogeneous product, free entry into and free exit out of the market, and resources can easily move in and out of the industry. These six assumptions is a must, for perfect competition to exist. Unfortunately in our world ,it is very difficult for perfect competition to exist, but there are market that comes close, for example currency market would be close to perfect competition. Same product, many sellers and buyers, the down side is the market can be influences by external factors. High entry barriers would make profit difficult, long run equilibrium with perfect competition would be affected. It also means all firms would not be at the optimal size, unable to combined variable resources efficiently. There are competitive pressure when it comes to high barrier to entry in perfect competition, when it is difficult to get in a competitive market, firms create clever way to get in and sometime that involve corruption, for example, the taxi cab industry.…
- 795 Words
- 4 Pages
Good Essays -
* Monopolistic competition: a market structure with many competitors selling differentiated products. Example: include the clothing industry and the restaurant business.…
- 253 Words
- 2 Pages
Satisfactory Essays -
Another type of market structure is known as a monopoly. This is an easy enough concept to comprehend, but I went back and forth with a few classmates as to different examples of a monopoly. Technically, a monopoly is a business that basically has no competitors in its industry. They reduce output to drive up prices and increase profit. In doing so, they produce less than the socially optimal output level and produces at higher cost than competitive businesses. One example of a monopoly would be the existence of only one option in utilities in any particular region.…
- 642 Words
- 2 Pages
Satisfactory Essays -
Competitive markets, monopolies, and oligopolies play a big role in the economy. We will be discussing the characteristics, price determination, output determination, barriers to entry, and the role in economy of each market structure.…
- 1081 Words
- 5 Pages
Good Essays -
A monopoly is an industry composed of only one firm that produces a product for which there are no close substitutions and in which significant barriers exist to prevent new firms from entering into the industry (Case, 2009). In a different definition, it can be distinguished by a lack of financially viable competition to produce the goods or services as well as to substitute goods. Monopolies often refer to a procedure by which a company could gain a determinedly larger market than what would be expected under an ideal competition. This paper will emphasize on several components such as how a monopoly can benefit towards stakeholders or owners. Also, how the changes could take place according to price and output of the goods and services in a particular market place and how the market structure can be beneficial to the Wonks potato chip monopoly.…
- 1755 Words
- 8 Pages
Powerful Essays -
According to Colander (2010), “An oligopoly is a market structure in which there are only a few firms and these firms explicitly take other firms’ likely response into account when making decisions.” Furthermore, given that Oligopolistic firms are few, they are interdependent of each other and can either be collusive or noncollusive. It is this interdependence amongst the firms that distinguish them as an oligopoly vice a competitive monopoly.…
- 1098 Words
- 5 Pages
Good Essays -
• The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). • Firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) • barriers to entry. • interdependence between firms. Monopoly • exists when a specific person or enterprise is the only supplier of a particular commodity •a lack of economic competition to produce the good or service • a lack of viable substitute goods Social and Cultural Forces • Businesses are faced with changing socio-cultural patterns, lifestyles, social values and beliefs • Changes that have significant marketing implications:…
- 19597 Words
- 79 Pages
Powerful Essays -
For an oligopoly, there are not many firms, but barriers to entry for new competition are big. Before determining any strategic options, the actions of the competition should be taken into consideration. By doing this a business within an oligopoly may maximize profits in the end if other businesses follow…
- 1459 Words
- 6 Pages
Better Essays -
The three primary assumptions of perfect competition are (1) all firms in the industry are price takers, (2) all firms produce identical products, and (3) there is free entry and exit of firms to and from the market. The first two assumptions are important because they imply that no firm has any market power and that each faces a horizontal demand curve. As a result, firms produce where price equals marginal cost, which defines their supply curves. With free entry and exit,…
- 1096 Words
- 16 Pages
Powerful Essays