Characteristics Of Monopolistic Competition
There are 3 major market structures:
1. Monopolistic competition
3. Monopoly: A. Natural B. Technical C. Geographic D. Governent
Competition between smaller companies, they all have something unique to offer that cannot be received anywhere else. for an example, this would include a world famous Cuban sandwich available only at one business, or the skills and expertise of a specific barber in a local barbershop. All though they all offer something unique, they need to compete for the same customers.
An example of this behavior, would be mom and pop shops competing over who gets the customers in a mall environment, where they all offer different products with varying levels of expertise
- would be mom and pop shops competing over who gets the customers in a mall environment, where they all offer different products with varying levels of expertise
- Usually a higher dedication to price of the product
- lower price than oligarchies and monopolies
- more widespread
- easy to join
- can go out of business easier due to fluctuation in the market
- heavily affected by competition.
Characteristics of Oligopoly
Oligopoly is the control of a market by a few powerful people, and they divvy up the market in order to avoid competition with each other. That way they are able to set the prices in a region as low or high as they want, and since there are no substitutes, people have to buy the product at their prices.
- Cable companies
- Steel companies
- Cell Phones
- Products given are more or less identical, and can all be substitutes for each other
- Not a monopoly, so it is not affected by Anti-trust laws.
- Stable prices
- Lower prices than monopolies.
- Not as profitable as a monopoly
- Barrier to entry is large
Characteristics of Monopoly
In general, a monopoly is control of an entire market by a single corporation. There are multiple forms of monopoly, but the end result is always the same.
Natural monopoly is the purest form of monopoly, and occurs when a corporation buys all of the competition, or makes them go out of business by raising the barrier-to-entry of a market to unfeasible levels. Because of the lack of competition, the company becomes a price maker, which sets the prices for the entire market without consideration to the competition. Another tactic is the over-regulation of a market in order to prevent people from creating competitive products.
- Water companies
- power companies
- Difficult to have competition levied against them.
- Able to set the prices to whatever they wish without serious repercussions
- able to hire lobbyists to help pass regulations on the market to avoid new competition forming.
- Likely to be targeted by United States Anti-trust laws
- The consumers won't be very happy with the rising prices
Run by the government, it is very difficult to compete, however competition is very rare as there often is not very much profit in the services offered by the government. Who'd want to pay privately for a person to pick up their garbage, when the government does it for free? Government monopolies occur when one specific group is instructed to provide a service, as well as setting it's price point for it's services. Often, government services can also be examples of Perfect monopolies, because it is impractical for multiple utility companies to offer their services to consumers at the same time.
- waste disposal: Waste management
- Postal services: USPS
- military services: United States military
- Because they are government corporations, there is very little chance of anti-trust laws from affecting them
- The reason why the government has to do these services in the first place, is because they rare not profitable and most people will not form businesses in order to do them, like the USPS, which has been in a constant state of financial loss for years.
Technological monopolies occur when the means of production are controlled by a single company. For an example, if one company devises a new kind of computer chip that runs ten times faster than any chip that can be produced for half the price, they will get all of the business. However, if the materials and methods used to produce these chips are patented, than their competition cannot produce a product of the same caliber, and will be edged out of the market.
- Apple (pre-Microsoft)
- Rearden steel (atlas shrugged)
- Provides a very effective barrier to entry
- the product often has no acceptable substitutes.
- Depends upon no one discovering an even more efficient means of production.
- Patents eventually expire, then become open source.
Geographic monopolies are produced when becasue of it's location, a company is able to provide a service that will be unavailable to their consumers if they go anywhere else. Unlike Monopolistic competition however, they control the entire market as well.
- a large department store opening up in a small town where there are no substitutes around, thus they bring in all of the consumers within a x-mile radius.
- Sports teams restricted to cities.
- Difficult for companies to justify opening up a new company to compete with such a large and successful store, as both companies would lose money, starting a war of attrition until one eventually goes under.
- Quality of services will decline