The Various Shades of Monopolies and Perfect Competition
Robert Sturdevant
Embry-Riddle Aeronautical University
Abstract
Monopolies are always known to hold a limited amount of control over its particular market and that gives them the dominant ability to control the prices for its goods or services, or in other words, they represent the market. They indeed have detrimental effects on consumer and social welfare, which is why most do not agree with them. This paper is an attempt to address the various points of monopolies in a society of competition.
Keywords: Monopoly, Perfect Competition, Price maker, Barriers
The Various Shades of Monopolies and Perfect Competition
The perfectly competitive firm is considered the price
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For this reason, a pure monopolistic company is not so intent on selling the most expensive product, but instead places their intent on maximizing their profits (McKenzie, 1998).
To some extent, the pure monopolistic firm varies from just a monopolistic firm partly because of the number of competitors involved in a monopolistic venue which is less than one hundred. A monopolistic firm can be defined as a firm that has a relatively large number of firms, differentiated products which is promoted with heavy advertising, and easy entry/exit from the industry itself.
Monopolistic competition consists of small market shares, meaning a firm has a relatively small percentage of the total market and limited control over the market price. Because of the fairly large number of firms involved confirms that no involvement by a certain group of firms can happen so there can be no restrictions on output of the products and a set price is unlikely and the involvement of several firms, each firm controls their own pricing without facing retribution from the other firms . This is quite a blatant difference between pure monopolistic firms being that pure monopolistic firms control the price and face no competition whatsoever in terms of products.
Utility companies are considered to be pure monopolistic in nature. In Virginia Beach, Dominion Electric is the sole provider of electricity;
An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.
Many utilities are monopolies by having the entire market share in certain areas. With deregulation of these utilities, the market becomes open to competition for market share to begin. In terms of regulation of monopoly, the government attempts to prevent operations that are against the public interest, call anti-competitive practices. Likewise, oligopoly is a market condition where there are minimal distributors that have a major influence on prices and other market factors. This causes market failure, especially if evidence of collusive behavior by dominant businesses is found.
In Document 4 “A Call to Action,” by James B. Weaver, it explained to the public through the author's thoughts of that monopolies had too much power and that the monopolies destroy competition and trade. This book was written at the time of when big corporations were taking over and destroying competition. Also, the author goes into detail that they control the price of the raw material, so they can produce their products at a low price and sell it at a low price. By selling that the lowest price, the competitors can not compete are driven out of business or reduce the wages of the workers. This idea can be related to current times were big corporations, such as Walmart, are destroying competition because they lower their prices that the competitors cannot compete with.
Economic analysis of a monopolistically competitive industry is more complicated than that of pure competition because:
This essay will look at efficiency between both a monopoly and a perfect competition, and whether a monopoly is necessarily less efficient than perfect competition. Using diagrams and equations reflecting the optimal choice of output, marginal revenue and marginal cost for monopolies, I will explain how efficiency is affected by low levels of production. At the same time monopolies can increase efficiency due to their ability in price discrimination, they price people differently and therefore people pay what they truly believe the good is worth. There needs to be a clear description of the differences between monopoly and perfect competition as well as efficiency; an analysis of deadweight loss and natural monopoly is also important
To understand better how the monopoly affects the market, we need to compare monopoly to perfect competition. Where there is perfect competition, the company is unable to decide the price of their product. In other words, the company has to label their prices according to the prices of their competitors. However, in a monopoly, they decide the prices and that too, at a much higher price with a different output compared to a competitive industry (Sloman, 2005).Some key points are given under:
In practice, pure monopolies are very rare. For instance, a supermarket may be the only food supplier in a particular town, but if it raises its prices and retains too much of a profit, a competitor may enter the space. Even the threat of serious competition entering the market forces the existing firm to act conscionably and differently from how it would act otherwise. (Monopolies & Oligopolies) For example Wal-Mart is not only a clothing store but it also a grocery store. Another place that is similar to Wal-Mart is Meijer and Wal-Mart is significantly cheaper than Meijer this is why many people such as myself shop at Wal-Mart versus Meijer.
Monopolistic Competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms are able to differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices. However, because there is freedom of entry, supernormal profits will encourage more firms to enter the market leading to normal profits in the long term.
Monopolistic competition is characterized by large number of sellers and buyers, similar but differentiated product, the easiness of enter and exit and each seller has the power of control over price. It is a competition that built up by the market because there is a competition between all of the substitute goods. There are many firms in this competition yet each firm only contributes a small total amount in the market shares. And this thing happen because the government wants to ensure that there is no strategic games played among firms in the market, for instance price collusion. Since there are so many firms, each of the firms are supplying only a small part for the market and no one can give a perfect prediction of what might
People have been doing anything in their power to gain money. Many think they are leading the competition with doing nothing wrong. Others see it as unfair to do the things that monopolies have done to society. Lawsuits have been made to stop the ones behind this, but some monopolies weren’t always out to hurt the economy, but to help it. Monopolies have impacted this economy in the past and even to this day.
The theory of pure competition is a theory that is built on four assumptions: (1.)There are many sellers and many buyers, none of which is large in relation to total sales or purchases. (2.) Each firm produces and sells a homogeneous product. (3.) Buyers and sellers have all relevant information about prices, product quality, sources of supply, and so forth. (4.) Firms have easy entry and exit.
Pure monopoly and perfect competition are two extreme cases of market structure. In reality, there are markets having large number of producers competing with each other in order to sell their product in the market. Thus, there is monopoly on the one hand and perfect competition, on the other hand. Such a mixture of monopoly and perfect competition is called monopolistic competition. It is a case of imperfect competition.
Answer: Typically, the approach to study and discuss monopoly bases on the firms’ behaviors in pursuit of maximizing monopolistic profit. In particular, the monopolist’s profit maximization is derived and interpreted through the first-order condition, which is the quantity of output that marginal revenue equals to marginal costs (Mankiw, 2012: 283). Following the above logic above, the discussion of maximization of monopoly profit is usually conducted by the mathematical equation and figure, which contains curves of demand, average cost, marginal cost, and marginal revenue. Different from the standard approach, the module of “Theoretical Foundation of Economic Policy” chose a different way to discuss monopoly. This module’s discussion on monopoly relied on case analysis.
Within monopolistic firms there are a large number of organizations that operate within the industry which are independent from each other. The decision of one firm in the market has no significant effect on the demand curves of its rivals. There is also freedom of entry into the industry. The firms within an industry offer product differentiation, where one firm’s product is amply diverse from its competitor 's products, in order to allow raises in price without customers converting to alternate products.
Perfect competition is a type of market structre where there is highest level of competition. In perfect competition the firms are offering homogeneous product. Every firm believe that it can sell any amount of output it wishes at the prevailing market price. Because of homogenous product and large number of firms, no individual firm is in a position to effect the price of the product and therefore the demand curve for the firm under perfect competition is a horizontal straight line.