Market structure Essay

Four basic types of market structures are: 1- Perfect competition 2- Monopolistic competition 3- Oligopoly 4- Monopoly There is also another market structure called Monopoly. 1- Perfect competition It is considered more theoretical than practical, because it is very rare. In perfect intention a large number of firms sell identical products, where none of them has pricing power. There no berries or very easy to enter to the market by any new farm. Prices. For example if we go to normal retail shops to buy vegetables, we will get at same prices from each and every shop.

Fish market at Male’ is a very good and a simple example, where inside the market lot of sellers will be selling same fishes. Prices will be set by the demand and supply. Neither buyer nor seller sets the price. It is more like automates pricing. Characteristics of perfect competition include large umber of small firms, identical products, perfect resource mobility and perfect knowledge. 2- Monopolistic competition It is almost like perfect competition where large number of small firms sells similar but not identical products. Relative freedom of entry, to and exit from the industry.

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It means buyers will have substitutes to choose from. Alternatives to buy for fulfill their needs and wants. Examples of industries structures as monopolistic competition includes, clothing industry, restaurants, and shoes and so on. 3- Oligopoly It is a market situation where products are supplied by small number of firms where ACH of them has influence over pricing and supplies which directly effects the position of the competitors. I oligopoly there is a special case where there is only two producers are called Duopoly. 4- Monopoly This is a market structure where only one producer in a market who has to the total control.

Buyers do not have substitutes and have no choice. They have total control over supply and prices. In this market structure, seller is always happy and consumers suffer. They take more profit with a huge marginal value from the products. Characteristics of monopoly includes single seller, unique product, berries o entry and specialized information. The fifth type of market structure which is not included in basic structures is Monopoly. It is upside down of a monopoly where there is only one buyer. If we relate to a Mammalian context, government is the only buyer for the explosives and guns. Where there may be many sellers.

Exhibit 1 Perfect Competition Monopolistic Competition Oligopoly Monopoly Number of Sellers Many Few One Barriers to Entry Very Low Low Very High Type of Substitute Products Very good Good substitutes but differentiated Very good differentiated substitutes No good substitutes Nature of competition Price only Marketing, features and price Advertising Pricing Power None Little Little to significant Significant As mentioned above, from 1988 to 2005 telecommunication industry of Maldives was a monopoly market. The following will elaborate how it was a monopoly and what was the situation during the monopoly. 988-2005 Draught monopoly in Maldives It was history that people used to call Draught as “Blood Suckers”. When the company started in the Maldives in Maldives there was a telecommunication service by cable and wireless which uses USB set to communicate between the islands. After their establishment as one and only telecoms service provider in 1988 they brought a major upgrade to their network in 1989 in Male and introduced paging service in the Maldives. They also introduced internet service for the very first time in Maldives in 1996 followed by mobile phone service in 1997 which was upgraded to GSM in 1999.

Being the only company to provide the service and major share controlled by the government of the Maldives, they introduced services at a huge marginal value. Consumers have no substitution in the market, which lead Draught to grow up and cake huge profit and extended its service to nationwide, while charging extraordinary high charges to cover its expansion costs and making more profit. It is usual to charge more from the consumers in monopoly market structure. In monopoly, always seller is always happy and consumers are unhappy.

Some pros and cons of monopoly are: Advantages Disadvantages Large capital scale benefit to the company More money to invest on development Earning national export revenues Price discrimination between consumers Very high market share Restricts production potential Do not actively pursue new clients Poor product quality Unfair wealth distribution Entry barrier for new comers When Waiting telecoms Maldives (presently called Ordered) started their service officially in Maldives on 1st August 2005 shortly after they were licensed on 1st of February 2005, the market structure changed to an oligopoly.

Oligopoly In economics oligopoly means that there are few sellers of a certain product in a market. Usually these sellers are always in a high competition with each other. In this type of markets sellers knows very well about their competitors. They have a high power to in pushing their products to the consumers. When on seller makes a change, it will directly affect other sellers. There is a special case in oligopoly which is called duopoly. Which is when the there is only two sellers in the market. Here are some advantages and disadvantages of oligopoly.

Advantages Lot of control Ability to fix prices Competitive pricing More profit making Perfect knowledge of the market Price controlling will be a disadvantage for consumers Creative ideas may fail to realist Difficult for small firms to establish in the market Not much of competition No fair wealth distribution Oligopoly in Maldives telecoms industry From 2005 Ordered became the major and the only competitor to Draught. As usual they have initiated their business with a huge investment to make existence of their network across the Maldives.

It was a huge challenge for them to establish when there was a well-established and government controlled seller in the marker for almost a decade, market share was 100% controlled by monopolized Draught. Immediately after starting the service in the market by the new comer, the unhappy customers of the monopolized industry started to change their service provider. They started with introductory promotional prices which was far much better than the ajar market controller, which directly affected the business of Draught. Competition, strengths and weaknesses.

When there are two or more sellers are there in a market, it is obvious that the competition will be born in the market. It is very interesting to study about the competition between Ordered and Draught. Luckily I have got very good connections at the top levels of both the companies, which made me to sit and talk about their respective companies. I found that they are tightly in competition with each other. Pricing: When Draught was alone in the industry, consumers pay around USED $100 average user used to pay around MOVE 2000 per month for the usage. Call rates are sky high.

Rates differ from calls from mobile to mobile and mobile to landlines. When the competition started and if we see current situation, we have choices for individuals and businesses depends on what consumer needs. There are some consumers who want more talk time than data while others doesn’t care about the talk time but data allowance the service provider offers. Those used to spend around 2000 per month now are spending less than 500 per month because of competitive pricing by the competitors. Advertising: Earlier days Draught keeps and average advertising.

Unlike that now each and every TV channel is occupied by both Draught and Ordered advertisements. All the islands with more population see those companies’ bill boards near harbors and schools. It is very clear that Ordered is doing more aggressive advertising while Draught use more informative advertising. Corporate Social responsibility: We used to say that both the companies do corporate social responsibility to a certain extent. But in real, in my study I found that rather than corporate social responsibility they both do corporate philanthropy. They do not actively participate in social activities.

But they do help by donation some money to do the social activities by others. That is a form of advertisement they both do. They are present in the activities as bill boards. Just to advertise the company name. For example: Thieved league football tournament is always sponsored by one of these two companies. Competitive advantages: Draught uses “first in Maldives” “Largest network” and so on while Ordered uses “best network for smart phones”. Draught is first to come and still holds 65% market share while Ordered is gaining market share at a rapid speed.

Bad the backbone of the company is much better with latest technologies while Draught is upgrading its backbone. Subsidized handsets to consumers: Ordered started offering Samsung handset to its consumers with contract for the very first time in Maldives. And soon they will be starting offer apple handsets on contract, while Draught is working with apple to introduce subsidized apple handsets with contract. Apple currently certified Ordered network for their products while Draught is doing upgrades to obtain certification of using Apple products on contract. Is this industry good for the society?

Unlike the history of the monopoly in the telecommunication industry in the Maldives, with existing oligopoly (duopoly) consumers are happy now. As is economic theory, human wants are unlimited with the scares resources available, people are still aiming for mush cheaper services with better quality. As mentioned earlier in this report, consumers’ expenses, for the use of telecommunication are decreased by 60 percentages. We never heard of handset for installments by service providers before. But it is started now. We have heard about subsidized handset with contract with carrier locked, from other parts of the world.

We never imagined that a small country with a small population like us will get phones on contract with subsidized prices. But it is soon to happen. Unlike perfect competition and monopolistic competition there are no much of sellers. So competition and pricing of the products will not be according to the demand and supply. Sellers will have the power to set the prices. Consumers are very happy when there is a perfect competition and monopolistic competition. Consumers are sad at most when there is a monopoly. But than they used to have, the monopoly. It is an average good for the society.

market structure

Each branch has its own market
specificity – the production of different goods, a various industry of
producers, the size of enterprises, the features of technology, the composition
and specificity of buyers, the specifics of competition.

In
microeconomics, the most typical market structures are generalized and the
behavior of manufacturing firms is studied, leading to the receipt of the
greatest benefits for them-the receipt of the maximum profit. At the heart of
these generalizations, specific recommendations are improved that have
important applied importance in the choice of the company’s behavior strategy
in specific market conditions.

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The object of
the analysis of competition is the branch. For example, a group of competitors
producing goods/services and directly competing with each other. The purpose of
the analysis is to identify the competitive advantages of the firm and the
choice of a competition strategy.

There are four main market structures: perfect
competition, monopolistic competition, oligopoly and monopoly.

Perfect
competition indicates a market structure, in which a plenty number of small companies
compete against each other. Moreover, firms do not have a significant impact on

power of
market. Consequently, the manufacture generally produces the absolute l level
of production, which in turn lead to market has
many buyers and producers trading identical products so that each buyer and
seller is a price taker.

Perfect
competition relies on the following elements:

·        
All small firms are
focused to maximize profits.

·        
The goods which
offered by the different sellers are largely the typical.

·        
There are not specific
preferences between different sellers. It does not matter for the customer from
which firms buy the products.

·        
All firms have free
access and exit to the market.

·        
There is perfect
information and knowledge about homogenous products.

At present,
according to Nelson statistics (2017) 3885567619 out of the global population
7519028970 people use the internet. Approximately 3.9 billion internet users
are both producers and consumers. The above mentioned example demonstrates that
the internet is a market, where a myriads number of consumers/producers operate
without any influence on market power which in turn lead to equal opportunities
in this market, exemplifying one of the features of perfect competition.

     Example of perfect
competition.

            Internet
related industries. The internet has a strong influence on perfect competition
market due to the fact that the internet has made the way of comparison and
check prices easily, quickly and efficiently (perfect information). Consequently,
selling any kinds of good on the internet through a service such as Alibaba,
Aliexpress and E-bay is extremely similar to perfect competition. For instance,
it is becoming more and more popular to use the above mentioned online
magazines to compare prices of any types of product and buy cheaper ones.

Like perfect
competition online magazines namely Alibaba, Aliexpress and E-bay relies on the
following elements:

·        
There also a large
number of sellers.

·        
Perfect information
and knowledge. It is easy to compare the prices of goods.

·        
There are no
significant barriers to entry and to exit to the market.

 

Monopolistic
competition is a type of market structure consisting of many small companies
that produce differentiated products and free entry to the market and exit from
the market. The products of these firms are close, however not completely interchangeable, it means that there
is a difference in price, features, branding and marketing.

By differentiating the product, the /monopolistic competitor
reduces price elasticity. Raising the price, the monopolistic competitor is not
deprived of all consumers, as it happens in the conditions of perfect
competition. The market is somewhat narrowed, but there remain those who
steadily prefer the products of only this manufacturer.

 

Monopolistic
competition relies on the following elements:

·        
availability of
many sellers and buyers (the market consists of a large number of independent
firms and buyers);

·        
free access to and
exit from the market (no barriers that keep new firms from entering the market
leaving the market);

·        
Differentiated, varied
products offered by competing firms. Moreover, products may differ from one
another in one or a number of properties (for example, in chemical
composition);

·        
perfect awareness
of sellers and buyers about market conditions;

·        
influence on the
price level, but in a rather narrow framework

 

Example of monopolistic competition:

One of the most convenient example for the
monopolistic competition is washing powder.

There are
quite a few different companies in Poland such as, Ariel, Tide, Ares, Perwoll,
Lenor, Vizir, Perlux, Maxi trat, FF, Persil, Losk, Surf, Bio Power, Origami and
so forth. As a result, for the production of new
varieties of detergent powders it is not required to create a large enterprise.
Therefore, if firms producing powders will receive large economic profits, this
will lead to the inflow of new firms into the industry. New firms will offer
consumers washing powder of new brands, sometimes not much different from those
already produced in a new package, another color or designed for washing
different types of fabrics.

The market of oligopoly is characterized by the
presence on the market of a minimal number of large sellers, whose goods can be
either homogeneous or differentiated. The entrance to the oligopolistic market
is extremely difficult, the entrance barriers are very high. Control of
individual companies over prices is limited. Examples of oligopoly can serve
the automotive market, cellular communication markets, household appliances,
metals. The peculiarity of the oligopoly is that the decisions of the companies
about the prices for the goods and the volumes of its supply are
interdependent. The situation on the market depends heavily on how companies
react when the price of a product changes with one of the market participants.
Two types of reaction are possible: the first is reaction ,when other
oligopolists agree with the new price and set prices for their goods at the
same level (follow the initiator of the price change);the second ignoring
reaction – other oligopolists ignore the price change by the initiating firm
and maintain the previous level of prices for their products. Thus, for the
oligopoly market, a broken demand curve is characteristic.

Features and
conditions of oligopoly:

·        
the number of
sellers in the industry: small;

·        
size of firms:
large;

·        
number of
customers: large;

·        
goods: homogeneous
or differentiated;

·        
control over the
price: significant;

·        
access to market
information: difficult;

·        
barriers to entry
into the industry: high;

·        
methods of
competition: non-price competition, very limited price.

Cellular
services today are the most profitable and rapidly growing segment of the
telecommunications market in Russia. A small number of sellers dominate the
Russian cellular market, which is one of the most obvious example for
oligopoly. The leading players here are MTS, Megafon, Beeline, Tele2. A feature
of the Russian cellular market is that it is characterized by a high level of
competition. MTS successfully relies on the price leadership strategy;
Megaphone applies the strategy of minimum prices for services; Beeline relies
on a pricing strategy based on individual costs; Tele2 provides the widest
range of tariff plans at low prices.

 

Monopoly
occurs when an enterprise produces products for which there is no substitute. The
opposite of perfect competition is a pure monopoly – a market where only one
firm operates, which by virtue of this circumstance can influence the market
equilibrium and market price.

Monopoly – a
market structure that meets the following conditions:

·        
The release of
goods throughout the industry is controlled by one seller of this product, which
means that the monopolist is the only producer of this good and personifies the
entire industry.

·        
The product
produced by the monopolist is special in its own way (unique) and has no close
substitutes.

·        
Monopoly is
completely closed to enter the industry of new firms, therefore in the
conditions of monopoly there is no any competitive struggle.

The most
prominent example of a pure monopoly in the United States is the United States
Postal Service (USPS). People have all heard that the Postal Service is losing
money. According to a report published in 2014, the USPS lost a staggering $2
billion dollars in just 3 months, despite cutbacks in service. With such a
glaring need for improved operations, you might wonder why other businesses
haven’t entered the market to compete with the Post Office for first-class and
standard mail delivery. Moreover, it should be noticed that the Post Office is
a government-protected monopoly. The Private Express Statutes established in
1792 gives the USPS exclusive rights to deliver letters for a fee, with very
few exceptions.  Letters that are
designated to be ‘extremely urgent’ may be delivered by other providers but
even then, the Post Office is allowed to set the minimum price that the private
competition must charge. This is an example of a legal barrier to
entering the market.

In conclusion, there are four main kinds of market structure: perfect
competition, monopolistic competition, oligopoly and monopoly. The perfect
competition illustrates a market structure, where myriads of small firms
contend with each other, while monopolistic competition also has a lot of small
firms, which compete with each other with the help of varied products. Besides,
Oligopoly demonstrates a marker structure with small number of firms. Monopoly
is the opposite of perfect competition, where only one firm controls all
market.

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