Market Structures

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.

Monopolistic Competition


Characteristics

  1. Each firm makes independent decisions about price and output.
  2. Entreprenuer has a more significant role than in firms due to increased risks associated with decision making.
  3. There is freedom to enter or leave the market. (no major barriers to entry or exit.)
  4. Products, Marketing,and Human capital/labor are differentiated
  5. Many sellers and buyers
  6. Nature of competition based on marketing, features, and price

Advantages

  • 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

Disadvantages

  • 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

Examples:

Restaurant Business, Hotels, Consumers services such as hairdressing.

Oligopoly

Characteristics

  1. Few number of sellers and many buyers
  2. High economies of scale make the barriers to entry fairly high
  3. Very good and differentiated substitutes
  4. nature of competition based on marketing, features, and price
  5. 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

Advantages

  • 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

Disadvantages

  • 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

Monopoly

Characteristics

  • one seller
  • very high barriers to entry
  • no advertising
  • nature of competition based on advertising
  • pricing power signifcant

Types

  • 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

Advantages

  • 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.

Disadvantages

  • 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)

Utilities often control their own area (: