Monopolistic, Oligopoly, and Monopoly
There are a few different types of Market Structures found in various societies. These include Monopolisitic Competition, Oligolopy, and Monopoly which will all be further described below.
- Each firm makes independent decisions about price and output.
- Entreprenuer has a more significant role than in firms due to increased risks associated with decision making.
- There is freedom to enter or leave the market. (no major barriers to entry or exit.)
- Products, Marketing,and Human capital/labor are differentiated
- Many sellers and buyers
- Nature of competition based on marketing, features, and price
- no significant barriers to entry
- differentiation creates diversity, choice, and utility
- market is more efficient than monopoly
- dynamically efficient, and innovative in terms of new products and production processes
- less productively efficient than a perfect competition
- some differentiation generates unnecessary waste
- advertising may be considered wasteful though most are informative
- perceived "prestige" of the brands induce consumers into spending more on the product opposed to the benefits
Restaurant Business, Hotels, Consumers services such as hairdressing.
- Few number of sellers and many buyers
- High economies of scale make the barriers to entry fairly high
- Very good and differentiated substitutes
- nature of competition based on marketing, features, and price
- sellers must be interdependent and make critical strategic decisions such as whether to compete with rivals, raise or lower prices, and what strategy to use
- companies are capable of deciding prices by choice
- helps in lowering the average cost of production of goods
- easier to make price comparison due to fewer players in the market
- dominant market players usually make long-term profits
- high concentration reduces consumer choice
- cartel-like behavior reduces competition and can lead to higher prices and reduced output
- firms can be prevented from entering a market because of the high barriers to entry
- may be productively inefficient
Examples: Phone service industry, Media industry, Healthcare insurance industry
- one seller
- very high barriers to entry
- no advertising
- nature of competition based on advertising
- pricing power signifcant
- Natural monopoly - type of industry makes it almost impossible for multiple companies to engage in the business.
- Geographic monopoly - there is only one company that offers a good or service in an area
- Technological monopoly - good or service the company provides has legal protection in the form of a patent or copyright.
- Government monopoly - government runs or directs a company; reserving a specific product or service for that company
- can benefit from economics of scale and may be natural monopolies which are best served to remain that way
- domestic monopolies can become dominant in their territory and then make it into overseas markets which result in earning valuable country export revenues
- high profit levels for monopolies due to the high barrier to entry.
- restricts consumer choice
- reduces consumer sovereignty
- restricts output onto the market
- companies can charge a higher price than in a more competitive market
Examples: Public utilities (water, lights, sewage)