conclusion of monopolistic competition essay

Monopolistic Competition – definition, diagram and examples

Definition: 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 can 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.

A monopolistic competitive industry has the following features:

• Many firms.
• Freedom of entry and exit.
• Firms produce differentiated products.
• Firms have price inelastic demand; they are price makers because the good is highly differentiated
• Firms make normal profits in the long run but could make supernormal profits in the short term
• Firms are allocatively and productively inefficient.

Diagram monopolistic competition short run

The firm maximises profit where MR=MC. This is at output Q1 and price P1, leading to supernormal profit

Monopolistic competition long run

In the long-run, supernormal profit encourages new firms to enter. This reduces demand for existing firms and leads to normal profit. I

Efficiency of firms in monopolistic competition

• Allocative inefficient. The above diagrams show a price set above marginal cost
• Productive inefficiency. The above diagram shows a firm not producing on the lowest point of AC curve
• Dynamic efficiency. This is possible as firms have profit to invest in research and development.
• X-efficiency. This is possible as the firm does face competitive pressures to cut cost and provide better products.

Examples of monopolistic competition

• Restaurants – restaurants compete on quality of food as much as price. Product differentiation is a key element of the business. There are relatively low barriers to entry in setting up a new restaurant.
• Hairdressers. A service which will give firms a reputation for the quality of their hair-cutting.
• Clothing. Designer label clothes are about the brand and product differentiation
• TV programmes – globalisation has increased the diversity of tv programmes from networks around the world. Consumers can choose between domestic channels but also imports from other countries and new services, such as Netflix.

Limitations of the model of monopolistic competition

• Some firms will be better at brand differentiation and therefore, in the real world, they will be able to make supernormal profit.
• New firms will not be seen as a close substitute.
• There is considerable overlap with oligopoly – except the model of monopolistic competition assumes no barriers to entry. In the real world, there are likely to be at least some barriers to entry
• If a firm has strong brand loyalty and product differentiation – this itself becomes a barrier to entry. A new firm can’t easily capture the brand loyalty.
• Many industries, we may describe as monopolistically competitive are very profitable, so the assumption of normal profits is too simplistic.

Key difference with monopoly

In monopolistic competition there are no barriers to entry. Therefore in long run, the market will be competitive, with firms making normal profit.

Key difference with perfect competition

In Monopolistic competition, firms do produce differentiated products, therefore, they are not price takers (perfectly elastic demand). They have inelastic demand.

New trade theory and monopolistic competition

New trade theory places importance on the model of monopolistic competition for explaining trends in trade patterns. New trade theory suggests that a key element of product development is the drive for product differentiation – creating strong brands and new features for products. Therefore, specialisation doesn’t need to be based on traditional theories of comparative advantage, but we can have countries both importing and exporting the same good. For example, we import Italian fashion labels and export British fashion labels. To consumers, the importance is the choice of goods.

Readers Question : if all firms in a monopolistic competitive industry were to merge would that firm produce as many different brands or just one brand?

Interesting question. I think it is an open-ended question with many different possibilities. One approach is to think how firms in different industries may behave if they did merge. Bearing in mind the model of monopolistic competition doesn’t always stand up to scrutiny too well in the real world.

If the firms merged together, there is no certainty how they would behave.

In some industries, it makes sense to have many differentiated brands creating an illusion of competition and providing a barrier to entry.

How many soap powders are there? About 35. But, most of these brands are owned by two companies, Unilever and Proctor and Gamble. Having brand proliferation means it is harder for a new firm to enter the market. This is because a new firm would have to compete against 30 established brands as opposed to 2. There is less chance of getting a good market share with so many brands. Therefore the new firm would have an incentive to keep different brands to deter competitors.

However, if you have merge different brands there may be economies of scale. You can devote more resources and investment to improving that particular product and maximising its efficiency. This might be appropriate for an industry like computer software or computers. There used to be many different brands of computers until the pc came to dominate.

Are the different brands catering to different sectors of the market. If you take the restaurant business, there is a big difference between Chinese and Indian. If 2 restaurants merge, they would be better off retaining distinct business. It would make no sense to have a restaurant which offered a mixture of Chinese/Indian – consumers would trust it less.

If you fear the arrival of a powerful company, it might be good to consolidate your brands. For example, there are many small search engines, but they would be better off combining forces to compete against the mighty Google.

43 thoughts on “Monopolistic Competition – definition, diagram and examples”

Was requesting for economic restrictions for monopolistic competition

All great actions and thoughts have a negligible beginning.

I work hard, I insist, I will succeed

Thanks a lot sir you explain easily the topic and this is very helpful for me

it was helpful kindly send some more important information to my gmail, will appreciate

why is not possible for monopoly to exist to a large extent in agriculture?

hello sir, Could you please tell me that which theme you uses ?

Explain the dertemination of the optimal price and output combination in a monopolistic competition.use the resulting equilibrium to illustrate the statement that ‘production inefficient is a necessary price to pay for product variety’ comment on this statement (25)

hi, how is a monopolistic competition different from monopoly? thanks

In monopolistic competition there are no barriers to entry. Theoretically, if firms have no barriers to entry or exit, there will be mass competition as everyone wants to get a piece of the super normal profit. If this happens, there will be decreased demand for a specific product or service, as theres more substitue goods. leading to firms in monopolistic competition acheiving normal profit in the long run. Whereas with monopolies, the low competition means they control supply, without the threat of competition offering more supply to boost market cap and sales, leading to them being able to keep demand constant and acheive supernormal profits in both the long and short run.

Monopoly cannot exist in large extent in agriculture because the Monopoly you are talking about is short run

I’m happy to have learnt something new

Comments are closed.

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Conclusion of Monopoly: Introduction Into Monopolistic Markets

By: Henrique Bertulino

When it comes to economics, free markets tend to exist in four kinds of states: ideal competition, monopolistic competition, oligopoly, and monopoly. All markets all over the world are subject to these four conditions. Of course, there is bound to be overlap and coexistence, but these are the main kinds of competitive markets we see. However, in this article, we will study what a monopoly market is.

Basics of Monopoly

• Single Seller

Unique Product Without Close Substitutes

• Barriers to Entry

Lack of Competition

Perfect competition, monopolistic competition, oligopoly and monopoly, number of sellers, difference between products, freedom of entry, ability to create price, conclusions and recommendations.

A monopoly happens in markets when there is no competition. In markets like this, the pricing power lies in the hands of a few - meaning the people, whether a group or organization, who are the sole suppliers of the product, set the price.

Price takers can never rise to the level of price makers in this sort of economy without the help of externalities. In this article, we show you how to take the market price back.

Getting right to the meat of things, a monopoly occurs when there is only one dealer or seller for a specific product distributing it to the people. The absence of other competitive firms allows the monopolistic company to ask for higher prices than usual. Economists believe that if something does not have any close substitutes and an individual vendor rules said market, that this market is a monopoly, and the vendor in question is a monopolist.

Not even the government is above this. There are many government firms acting as monopoly power, for example, cable companies like Tenaga National and the press.

Characteristics of Monopoly

A monopoly market is a sure-fire way to achieve profit maximization. With that in mind, let us take a closer look at the characteristics that make it so.

Single Seller

Let us take an example to understand this. Suppose Parker was the only seller of pens in a country. Everyone in that country would have to buy pens from them. They literally have no other choice. The market share enjoyed by Parker in this hypothetical scenario is a hundred percent. That is profitability worth waging war for.

When a single seller takes center stage, there is no reason for them to give any importance to marginal revenue or cater to the needs of the consumers. It is economic autocracy as it will be the only price maker and everyone else will be a price taker - unable to affect the market price because whatever they do has no impact.

Let's continue with the example. Why is Parker able to get away with it? Perhaps it is because their pens are so good that people only want their products. This could be true, but to be a monopoly, Parker and only Parker would have to be producing pens. Thus, in this hypothetical, they are meeting a very unique need - something nobody else can meet.

Whether by protecting the secrets of manufacturing or by some other trick, the best will remain the best. Eliminating the competition by creating something only they can do.

You can use examples and analogies like these to illustrate your point. If you have trouble coming up with these ideas, there are websites that write essays for you . But even then, you can preserve your unique insights and simply expand on them. This is the trick to you get the best grade.

Barriers to Entry

A monopoly is the ideal of imperfect competition and this reason is why. Going with the example, Parker would not want to lose its profits. Therefore, they would not allow other pen manufacturers to enter the market. And just like that, you retain market power and remain the price maker.

Going with the previous point, competition would result in lower prices. Monopolists do not want that. That is why they get rid of the competition. This means that the demand curve for a monopoly company is downward sloping, which ultimately shows the average revenue or price for each and every unit of result sold. Marginal income is additional in total revenue from offering one more product.

To move away from monopoly, one simply needs to reverse what makes it. The characteristics we discussed in the previous section are the columns that hold up this structure, Take those away one by one, and it falls apart. How do you do that? Well, let's find out!

Microsoft is not the only company that makes operating systems. Yes, Windows is popular, but so is Linux. Android leads the pack as far as phones and tablets are concerned. This means that, depending on your needs, there are a lot of sellers out there to give you what you need. And with this, the shackles of monopoly begin to fall off.

All of these sellers will set their prices, and the fight between each will help set the market price. Economies that depend on the interplay of sellers to determine prices are considered healthy.

Different producers mean different prices. There will be differences in production, there will be inefficiency, different companies will have different levels of output from each other. There will be no perfect substitutes. Each will have different pros and cons, which means there will be more choices available to every consumer. Product differentiation is a good thing, since it eliminates extremely high prices outright.

In a monopoly, nobody can just decide to start selling something. There are barriers in place to stop them from doing so. These include an exclusive source of information ownership, high start-up cost, and copyrights. The complete opposite of this needs to be achieved in order to throw off monopoly for good. Companies need to be helped and it should be relatively easy to enter the market - provided the company and the product meet the standards of everyone involved in the market.

In monopolistic markets, the monopolist sets the price and that's it. There is no place for price discrimination at all. In a healthy competitive market, the price is set through different companies competing with each other. One company can set the price of their product according to what they see fit, and others are free to do the same. The price thus reached is indicative of the quality of the product. For example, there is a reason why iPhones cost more than Samsung or Sony phones. All of those products have a steady consumer base, so nobody really loses out at all.

The world of macro and microeconomics is as vast as any ocean. There are a thousand things that go into making a market feasible and actually productive. Economies of scale are a very interesting thing. A deadweight loss, differentiated products, and marginal cost are all subjects unto themselves that require proper attention when breathing life into a market structure.

A monopoly, for example, though it is highly profitable thanks to its consumer surplus and supply curve, makes for a very dull economy where everything is the same. Human beings are diverse by nature. Nobody wants one kind of anything. Imagine having to watch only Marvel movies, or drink only Pepsi, or eat only Subway for the rest of your life. It won't be very fun.

And that is why monopoly as a system needs to come to an end. However, don't let all this jargon get you down. We fully understand just how difficult and messy the world of economics can be. If you do not have a clear understanding of everything that goes into it, you will not be able to write a proper paper.

That's where Studybay's homework help comes in! Consider using our economics helpers to refine your knowledge to a sharp point. Then, armed with everything you need to know, you can produce the best paper anyone will have ever seen. We make it easy for students to get the best grades, so contact us today!

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1.5 Monopolistic Competition, Oligopoly, and Monopoly

Learning objective.

• Describe monopolistic competition, oligopoly, and monopoly.

Economists have identified four types of competition— perfect competition , monopolistic competition , oligopoly , and monopoly . Perfect competition was discussed in the last section; we’ll cover the remaining three types of competition here.

Monopolistic Competition

In monopolistic competition , we still have many sellers (as we had under perfect competition). Now, however, they don’t sell identical products. Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily).

How is product differentiation accomplished? Sometimes, it’s simply geographical; you probably buy gasoline at the station closest to your home regardless of the brand. At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from another—and better than it. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price.

Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low.

Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge. But there’s a catch: because products are fairly similar, when one company lowers prices, others are often forced to follow suit to remain competitive. You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions.

In terms of the number of sellers and degree of competition, monopolies lie at the opposite end of the spectrum from perfect competition. In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly , however, there’s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn’t necessarily have to be an entire country.

There are few monopolies in the United States because the government limits them. Most fall into one of two categories: natural and legal . Natural monopolies include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they’re legal because they’re important to society. In exchange for the right to conduct business without competition, they’re regulated. For instance, they can’t charge whatever prices they want, but they must adhere to government-controlled prices. As a rule, they’re required to serve all customers, even if doing so isn’t cost efficient.

A legal monopoly arises when a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years (United States Patent and Trademark Office, 2006). During this period, other companies can’t use the invented product or process without permission from the patent holder. Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant-film technology (Bellis, 2006). Polaroid priced the product high enough to recoup, over time, the high cost of bringing it to market. Without competition, in other words, it enjoyed a monopolistic position in regard to pricing.

Key Takeaways

• There are four types of competition in a free market system: perfect competition, monopolistic competition, oligopoly, and monopoly.
• Under monopolistic competition , many sellers offer differentiated products—products that differ slightly but serve similar purposes. By making consumers aware of product differences, sellers exert some control over price.
• In an oligopoly , a few sellers supply a sizable portion of products in the market. They exert some control over price, but because their products are similar, when one company lowers prices, the others follow.
• In a monopoly , there is only one seller in the market. The market could be a geographical area, such as a city or a regional area, and does not necessarily have to be an entire country. The single seller is able to control prices.
• Most monopolies fall into one of two categories: natural and legal .
• Natural monopolies include public utilities, such as electricity and gas suppliers. They inhibit competition, but they’re legal because they’re important to society.
• A legal monopoly arises when a company receives a patent giving it exclusive use of an invented product or process for a limited time, generally twenty years.

Identify the four types of competition, explain the differences among them, and provide two examples of each. (Use examples different from those given in the text.)

Bellis, M., “Inventors-Edwin Land-Polaroid Photography-Instant Photography/Patents,” April 15, 2006, http://inventors.about.com/library/inventors/blpolaroid.htm (accessed January 21, 2012).

United States Patent and Trademark Office, General Information Concerning Patents , April 15, 2006, http://www.uspto.gov/web/offices/pac/doc/general/index.html#laws (accessed January 21, 2012).

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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• Monopolistic Competition

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

Are You Retirement Ready?

Table of contents, what is monopolistic competition.

Monopolistic competition is a market structure where there are many small firms that produce differentiated products. Unlike perfect competition, each firm has some market power due to product differentiation, which allows them to charge slightly higher prices than their competitors .

However, because there are many firms producing similar but not identical products, consumers have a range of choices and can switch to another product if the price of one becomes too high.

As a result, firms in a monopolistically competitive market must engage in non-price competition, such as advertising and product differentiation, to attract customers.

Characteristics of Monopolistic Competition

Monopolistic competition is characterized by several key features:

Large Number of Small Firms . There are many firms operating in the market, none of which dominates the market.

Differentiated Products . Each firm produces a product that is distinct from its competitors' products, either through quality, design, or branding.

Some Market Power . Each firm has some control over the price of its product due to product differentiation, but this control is limited because there are many substitutes available to consumers.

Non-price Competition . Firms in a monopolistically competitive market compete using advertising, product development, and other marketing strategies to attract customers rather than relying on lower prices.

These characteristics create a market structure that combines elements of both monopoly and perfect competition, resulting in a market where firms have some market power, but not enough to eliminate competition altogether.

Examples of Monopolistic Competition

Monopolistic competition can be observed in a variety of industries, but here are some examples:

Restaurants

These are a good example of monopolistically competitive markets because they offer different types of cuisine, ambiance, and price range, which creates a range of options for consumers.

This differentiation allows each restaurant to have some control over its pricing strategy, but not enough to eliminate competition.

Clothing companies differentiate their products through design, quality, and brand image. This differentiation creates a range of options for consumers, giving each clothing company some market power over its pricing strategy.

Consumers often choose clothing based on brand image, style, and quality, rather than just the price.

Electronics

Companies producing electronics such as smartphones, laptops, and televisions are also good examples of monopolistically competitive markets. These companies differentiate their products through technology, features, and design.

For example, Apple's iPhone and Samsung's Galaxy phones have different designs, features, and operating systems, which create a range of options for consumers.

These industries have many firms competing for market share and offering slightly different products, making them good examples of monopolistically competitive markets.

Benefits of Monopolistic Competition

Monopolistic competition offers several benefits to both consumers and firms:

Consumer Choice

In a monopolistically competitive market, consumers have a range of options to choose from, leading to greater consumer satisfaction and utility.

Product Differentiation

Firms in a monopolistically competitive market differentiate their products, which encourages innovation and leads to a greater variety of products for consumers.

The need for product differentiation in a monopolistically competitive market drives firms to innovate and create new products, technologies, and marketing strategies to attract consumers.

This can lead to technological advancements and greater efficiency in the market.

Overall, monopolistic competition encourages competition, innovation, and variety, benefiting both consumers and firms in the market.

Challenges of Monopolistic Competition

While monopolistic competition offers some benefits, it also presents several challenges:

Barriers to Entry

The product differentiation in monopolistically competitive markets can make it difficult for new firms to enter the market and compete with established firms. This can lead to reduced competition and market inefficiencies.

Higher Prices for Consumers

Firms in a monopolistically competitive market have some market power, which allows them to charge slightly higher prices than in a perfectly competitive market.

This can lead to higher prices for consumers and reduced consumer surplus.

Inefficient Allocation of Resources

Monopolistic competition can lead to an inefficient allocation of resources, as firms may spend resources on advertising and product differentiation rather than on improving their production process.

This can result in less efficient use of resources and higher costs for consumers.

Applications of Monopolistic Competition

Monopolistic competition has several practical applications in business and government policies:

Business Strategy and Marketing

Firms in a monopolistically competitive market must focus on product differentiation and non-price competition to attract customers.

This can include investing in research and development, creating unique brand identities, and developing marketing campaigns to promote their products.

Government Regulation and Antitrust Policies

Because monopolistic competition can lead to market inefficiencies and reduced competition, governments may regulate these markets to promote fair competition and protect consumers.

Antitrust laws may be used to prevent monopolistic practices, such as price-fixing, collusion, or abuse of market power.

Understanding the characteristics and implications of monopolistic competition can help businesses make strategic decisions and help governments develop effective policies to promote competition and protect consumers.

Comparison of Monopolistic Competition with Other Market Structures

Monopolistic competition is just one of several market structures, each with its unique features:

• Perfect Competition

In a perfectly competitive market , many small firms sell identical products with no market power. Prices are determined by supply and demand , and there are no barriers to entry or exit.

Unlike the monopolistic competition, there is no product differentiation or non-price competition.

In a monopoly, there is only one firm in the market with complete market power. The firm can set prices and restrict output without facing competition. There are significant barriers to entry, making it difficult for new firms to enter the market.

Monopolistic competition sits between the extreme market structures of perfect competition and monopoly, with some market power due to product differentiation but still facing competition from other firms.

In an oligopoly, there are only a few firms in the market, each with a significant market share.

The firms may have some market power and engage in non-price competition, but there are significant barriers to entry and exit, making it difficult for new firms to enter the market.

Oligopoly is similar to monopolistic competition in that there are barriers to entry and a small number of firms, but with more market power and less product differentiation.

Final Thoughts

Monopolistic competition is a market structure in which many small firms produce differentiated products, leading to some market power and non-price competition.

This market structure offers benefits such as consumer choice, product differentiation, and innovation but also presents challenges such as barriers to entry, higher prices for consumers, and inefficient allocation of resources.

It is important to note that monopolistic competition is just one of several market structures, each with unique features and implications. You can speak to a wealth management professional to learn more about monopolistic competition.

Monopolistic Competition FAQs

What is monopolistic competition, and how does it differ from perfect competition.

Monopolistic competition is a market structure where many small firms produce differentiated products, creating some market power but still facing competition. Unlike perfect competition, firms have some control over the price of their product due to product differentiation.

What are some examples of industries that demonstrate monopolistic competition?

Monopolistic competition can be observed in industries such as restaurants, clothing, and electronics, where firms differentiate their products through features, design, and branding to attract customers.

What are the benefits of monopolistic competition?

Monopolistic competition offers benefits such as consumer choice, product differentiation, and innovation, as firms must constantly develop new products, technologies, and marketing strategies to remain competitive.

What are the challenges of monopolistic competition?

The need for product differentiation can create barriers to entry, making it difficult for new firms to enter the market and compete with established firms. This can lead to market inefficiencies and higher prices for consumers. Furthermore, monopolistic competition can result in an inefficient allocation of resources.

How can businesses and policymakers navigate the challenges of monopolistic competition?

Understanding the characteristics, benefits, and challenges of monopolistic competition is essential for businesses and policymakers seeking to navigate this market structure effectively. This includes investing in research and development, creating unique brand identities, and developing marketing campaigns to promote their products. Governments may also regulate these markets to promote fair competition and protect consumers through antitrust laws.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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• Spending time with family and friends
• Pursuing hobbies

Part 2: Your Current Nest Egg

Part 3: confidence going into retirement, how comfortable are you with investing.

• Very comfortable
• Somewhat comfortable
• Not comfortable at all

How confident are you in your long term financial plan?

• Very confident
• Somewhat confident
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What is your risk tolerance?

How much are you saving for retirement each month.

• None currently
• Minimal: $50 - $200
• Steady Saver: $200 - $500
• Serious Planner: $500 - $1,000
• Aggressive Saver: $1,000+

How much will you need each month during retirement?

• Bare Necessities: $1,500 - $2,500
• Moderate Comfort: $2,500 - $3,500
• Comfortable Lifestyle: $3,500 - $5,500
• Affluent Living: $5,500 - $8,000
• Luxury Lifestyle: $8,000+

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What is your current financial priority.

• Getting out of debt
• Growing my wealth
• Protecting my wealth

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Which of these is most important for your financial advisor to have.

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1.19 Conclusion

In this chapter, we have introduced many of the fundamental concepts related to understanding differentiation and the diffusion of innovations within the context of monopolistic competition. The key points are the following:

• Monopolistic competition involves many buyers and sellers of products that are closely related, but not identical where entry and exit are easy. It is the dominant form of competition.
• Entrepreneurship is the best method for competing in monopolistically competitive environments. Entrepreneurship involves engaging in a risky endeavor with continuous creation and re-creation of a new enterprise, a new product, or a new idea.
• Radical innovation tends to replace existing ideas, products, services, and processes. Incremental innovations involve smaller improvements in ideas, products, services, and processes.
• Technology life cycles and the product life cycles are used to understand the diffusion of technologies and products.
• Diffusion is the acceptance, adoption, and awareness of a technology or a product by individuals.
• The diffusion of a technology usually lags the performance of a technology and this can be understood using Moore and Metcalf’s laws.
• The Bridge model is a useful way to understand discontinuities in the technology life cycle where problems can occur.
• R&D activities are present in large and small organizations, they are just implemented differently.
• Learning-about involves searching, reading, inquiry, and synthesis. Learning-by-doing involves making and building things. Learning-about and learning-by-doing are the foundation of R&D.
• Developing a strong supply chain and a strong brand through marketing are critical for delivering differentiated products and services.

This chapter has illustrated the foundational concepts for competing in the current marketplace. Subsequent chapters will build on this foundation and present additional details on how to accomplish differentiation and innovation through product and services versioning.

Conclusion of Monopoly: Introduction Into Monopolistic Markets

Welcome to The Knowledge Nest, your ultimate source for comprehensive information on various topics. In this post, we dive into the conclusion of monopoly and introduce you to the fascinating world of monopolistic markets in the field of community and society.

Understanding Monopolies

Monopolies are unique market structures where a single company or entity possesses exclusive control over the production or distribution of a particular product or service. Generally, monopolies are characterized by a lack of competition, allowing the dominant player to influence market dynamics and establish their own pricing.

The Impact of Monopolies

Monopolies can have profound effects on the economy and society, both positive and negative. On one hand, a monopoly can drive innovation, invest in research and development, and achieve economies of scale that lead to cost efficiency. This can result in improved products, better services, and overall economic growth.

However, the concentration of power in the hands of monopolistic entities also raises concerns. Limited competition can lead to inflated prices, reduced consumer choice, and hindered market entry for potential competitors. Furthermore, monopolies may exploit their dominant position to prioritize profit over social welfare, potentially leading to income disparity and societal imbalance.

Challenges of Monopolistic Markets

Monopolistic markets pose unique challenges that affect various stakeholders. Consumers may face higher prices, limited product variety, and reduced quality due to the absence of competitive pressure. Small businesses and startups often find it challenging to break into monopolistic markets due to high entry barriers set by established players. This hampers entrepreneurship and innovation.

The Role of Antitrust Measures

In recognition of the potential drawbacks of monopolies, many countries have implemented antitrust measures. These measures aim to promote fair competition, prevent market abuse, and protect consumer interests. Government bodies often closely monitor monopolistic entities to ensure compliance with regulations and take necessary action when anticompetitive behavior is detected.

Promoting Healthy Competition

In order to foster healthy competition in monopolistic markets, various strategies can be employed. Governments may encourage the entry of new players through policies that reduce barriers to market entry. Additionally, promoting mergers and acquisitions to bolster competition and prevent monopolistic tendencies from emerging is crucial. The establishment of independent regulatory bodies can also assist in maintaining a level playing field and protecting consumer rights.

The Future of Monopolistic Markets

As technological advancements continue to reshape industries, the future of monopolistic markets remains uncertain. The rise of disruptive innovations and the power of digital platforms have the potential to disrupt traditional monopolies and challenge their dominance. However, the role of government regulations and proactive measures will be instrumental in shaping the future landscape of monopolistic markets.

In conclusion, the impact of monopolies in society and the economy cannot be understated. Understanding the intricacies of monopolistic markets helps individuals and policymakers navigate the challenges they present. At The Knowledge Nest, we strive to provide comprehensive insights into market structures like monopolies and contribute to the broader understanding of their implications for community and society.

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Monopolistic Competition And Market Structure

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Market Structures: Unveiling Monopoly and Monopolistic Competition Dynamics

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Key Assumptions of Monopoly

• Single Firm:
• Unique Product:
• Barriers to Entry:

Understanding Monopoly: A Deeper Dive

• Many producers and consumers in the market.
• No single business commands the market price.
• Consumer perception of non-price differences among competitors' products.
• Few or zero barriers to entry and exit.
• Producers have limited control over prices.

Comparing Monopoly and Monopolistic Competition

Exploring the Nuances: A Comprehensive Examination

• Abundance of producers and consumers.
• Absence of a single entity controlling the market price.
• Consumer recognition of non-price differentiations among competing products.
• Minimal barriers to entry and exit.
• Producers exert limited control over prices.

Scrutinizing the Contrasts: Monopoly vs. Monopolistic Competition

• Market Structure:
• Monopoly: Single seller dominates the market.
• Monopolistic Competition: Numerous small firms coexist.
• Profit Levels:
• Monopoly: Enjoys maximum profits due to exclusive control.
• Monopolistic Competition: Experiences lower profits.
• Price Determination:
• Monopoly: Acts as a price maker, influenced by quantity.
• Monopolistic Competition: Prices influenced by market competition.
• Monopoly: High barriers restrict new entrants.
• Monopolistic Competition: Few or no entry barriers.
• Price Discrimination:
• Monopoly: Can implement price discrimination.
• Monopolistic Competition: Constrained by competitive pricing.

Conclusion: Deciphering the Economic Landscape

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The Example Of Monopolistic Competition

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1.0 Introduction

2.0 monopoly, 2.1characteristics of monopoly, 2.2 diagram of monopoly.

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2.3 Conclusion of Monopoly

3.0 perfect competition, monopolistic competition, oligopoly and monopoly, 3.1 difference between the features of perfect competition, monopolistic competition, oligopoly and monopoly, 3.1.1 perfect competition, 3.1.2 monopolistic competition, 3.1.3 oligopoly, 3.1.4 monopoly, 3.2 conclusion, 4.0 conclusions and recommendations, cite this work.

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Price Discrimination and Monopolistic Competition Essay

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Introduction

Price discrimination, degrees of price discrimination, rationale for the third-degree price discrimination; student discounts, benefits and costs of price discrimination, monopolistic competition, most plausible explanation for the pricing strategy, reference list.

Consumers engage in a comprehensive decision making process in their consumption processes. Some of the elements that consumers are concerned with relate to product quality and price. Consumers have limited income, and thus they select what to purchase and at what price. Boyes (2011) posits, “Consumers are heterogeneous in their preferences between price and quality” (p.29).

The consumers’ decision to purchase a particular product is motivated by the desire to attain a certain desired level of utility. On the other hand, firms provide consumers with a wide range of products and services, which are offered at different prices. Product pricing is subject to different factors; for example, the cost of production, product quality, and the firm’s profit maximisation objective.

According to Hirschey (2009), businesses have an obligation to set optimal product prices failure to which they will not be in a position to achieve their profit maximisation objectives. Despite this aspect, the ability of an organisation to set optimal price is subject to the prevailing level of competition.

According to Varian (2010), the competitive market is characterised by a large number of firms that deal identical products and this aspect limits a firm’s ability to exploit the consumers by selling the product at a high price.

Varian (2010) asserts, “Any attempt by one of the firms to sell its products at a higher price than the market price leads consumers to desert the high-priced firm in favour of its competitors” (p.461). Businesses can adopt different criteria to achieve profitability. One of these strategies includes price discrimination.

Alternatively, a firm may decide to adopt monopolistic competition strategies. This paper intends to explain the concept of price discrimination and monopolistic competition behaviour by firms.

The study takes into account the case of daily and weekly news publications companies like the Financial Times and the Economist . These firms provide students with various types of publications at highly discounted prices through the students-union shops.

Price is one of the core elements of every market economy. Varian (2010) asserts that the various product characteristics such as timing, options, quantity, and quality amongst others are embodied in the price. In a perfect market, all firms operate as price takers, and this aspect means that the firms do not set the price of their product, but it is rather determined by the market forces.

Varian (2010) further asserts that organisations in most markets engage in price discrimination. Price discrimination refers to a situation whereby consumers are charged different a price for the same product. This phenomenon also occurs in a situation whereby the price differential of a particular product between two consumer groups does not reflect the cost discrepancies.

Varian (2010) asserts that price discrimination is a common phenomenon in most markets such as the transport, travel, services markets, and consumer products markets. Businesses adopt price discrimination in an effort to increase their sales revenue. Sexton (2008) opines that price discrimination is integrated by organisations that are motivated by the need to maximise profit.

Sexton (2008) asserts that not all firms can integrate price discrimination. In order to practice price discrimination, it is essential for organisations to integrate and fulfil a number of conditions. Some of these conditions are explained herein.

• Monopoly power – Varian (2010) is of the opinion that price discrimination can only occur if a particular firm has a certain degree of monopoly power. Moreover, price discrimination can also occur if firms follow identical pricing policies.
• Market segregation – a firm can also adopt price discrimination if it has the capability to separate its customers in accordance with their ability to pay.
• No resale – Sexton (2008) opines that it should not be possible for the buying party to resell the product to other consumers at a high price. If reselling is possible, consumers may take advantage and resell the product at a profit to other consumer groups. Therefore, price discrimination only occurs is there is no market seepage.

There are three main degrees of price discrimination, which include:

• First-degree price discrimination
• Second-degree price discrimination
• Third degree price discrimination

First-degree price discrimination – this type of price discrimination is also referred to as perfect price discrimination. Under 1 st degree price discrimination, a firm sells a unit of a particular product to the consumer who mostly values it. The product is sold at the maximum price that the consumer is willing to pay.

Second-degree price discrimination – this type of discrimination is also referred to as non-linear pricing. Under this type of discrimination, the price of a commodity depends on the quantity purchased. Varian (2010) asserts that second-degree price discrimination is mainly applied in setting the price of public utilities such as determining the price per unit of electricity.

Third-degree discrimination – this form is the most common type of price discrimination. It occurs if an organisation sets a different price for a particular consumer group. The individuals within the targeted consumer group pay a similar price for a particular unit of output. Consequently, third-degree price discrimination occurs in a market whereby the consumers can segment the market.

In an effort to serve the market effectively, firms classify their consumers into different categories. The classification may either be based on a not-for-profit status and for-profit status. Other classifications may be based on customer age or geographical location (Hirschey 2009).

Example of third-degree discrimination occurs in learning institutions whereby students are offered products and services at a discount at the University Union shops. The shops command a certain degree of monopoly. Moreover, it is possible for the union shops to identify the students as the targeted consumer group. Consequently, they are in a position to offer products at discounted prices.

Publishing companies such as The Wall Street Journal, Barrons, the Economist , and Forbes offer students huge price discount. Other areas in which third degree price discrimination is applied includes movie theatres whereby the price of movie tickets for adults and children differ. Third-degree price discrimination is also applied in drugstores that provide senior citizens with drugs.

Most publishing companies are committed in attracting and retaining a large number of students to purchase their academic journals and other publications. Consequently, such companies are forced to adopt effective marketing strategies in order to penetrate the learning institutions. One of the strategies adopted relates to price discrimination.

The publishing houses are forced to offer students the publication at a relatively low price. The firms are motivated by the view that offering their publications at a discounted price to students will lead to the creation of future loyal customers. Students and senior citizens are considered as very sensitive to price.

Therefore, in order to attract a large number of students to consume their products, the firms are forced to price-discriminate by integrating a price discount. Therefore, the publishing firms are in a position to maximise their level of profit by marketing to students as one of their essential sub-markets (Varian 2010).

Third-degree price discrimination can also be explained by the view that it contributes to the creation of a welfare effect. Numerous studies have been conducted in an effort to examine the third degree price discrimination. Robbinson was the first person to evaluate the social welfare effect in 1933 and later Schmalensee in 1981 carried out his evaluation too.

The studies revealed that third-degree price discrimination contributes towards the improvement in the social welfare of the targeted consumer group. Muller-Langer (2008) defines social welfare as “the sum of consumers’ surplus under such specific conditions as constant marginal costs, dependent [deterministic] demand, and increasing total output associated with price discrimination as compared to uniform pricing” (p.93).

Varian (2010) further asserts that third-degree price discrimination is more applicable in conditions of probabilistic demand and increasing marginal cost. On the other hand, Muller-Langer (2008) asserts that third-degree price discrimination enables firms to serve markets that would have been difficult to serve through uniform pricing strategy.

Incorporating price discount enables a firm to attract low-income consumers. Cowan (2007) asserts, “Third-degree price discrimination enables an organisation to supply to a group of consumers who would not be supplied in the absence of price discrimination” (p. 419).

Therefore, the likelihood of an organisation maximising its sales revenue, and hence its profit is high. By re-investing the gains made, an organisation can improve its operational efficiency, hence enhancing the likelihood of offering its products at low prices.

This move will enable the firm to survive in the end. Third-degree price discrimination increases the likelihood of businesses to maximise their level of output. Consequently, the likelihood of such firms achieving profit maximisation is high.

Despite the welfare benefits associated with price discrimination, Varian (2010) argues, “Price discrimination is a pricing strategy in which producers gain at the expense of consumers through the extraction of consumer surplus” (p.467).

Furthermore, price discrimination may lead to exploitation of some consumers as evidenced by the view that some consumers may be forced to pay a high price for the same product. Therefore, one can assert that price discrimination contributes towards unjustifiable income redistribution by firms, which are price takers and this aspect leads to the reduction in the consumers’ real income.

According to Varian (2010), a monopolistic industry refers to an industry that is characterised by one large firm that has the ability to control the market. Monopolistic competition entails a form of imperfect competition in which the competing firms produce and sell differentiated products.

Therefore, monopolistic competition occurs between firms that produce substitute products. Varian (2010) emphasises that monopolistic competition is the most common type of industry structure. A monopolistically competitive market depicts a number of characteristics as illustrated below.

Every firm has the right to make independent decisions on the level of output and the price at which it will offer its products in the market. However, the price is determined based on the cost of production, the product quality, and the nature of the market. Consequently, firms in monopolistically competitive market are price makers. Therefore, they can charge high or low price in an effort to rival their competitors.

Secondly, all the parties in a monopolistically competitive market are well informed about the prevailing market conditions such as information on alternative product prices. The consumers also have extensive knowledge about brand names and product differences. On the other hand, the competing firms have perfect information about the activities of the other firms, for example their pricing strategies.

Therefore, the activities of firms in a monopolistic competitive market are guided by the activities of the competing firms. However, the market information is not perfect, which means that consumers have an opportunity to review the price offered by different competing firms before making a choice (Varian 2010).

Another major characteristic of a monopolistic competitive market is the existence of product differentiation. Firms in a monopolistically competitive market tend to market their products by exploiting the perceived difference. Therefore, consumers develop a perception that the substitute products available in the market are not the same.

For example, drug stores offer consumers diverse over-the-counter drugs under different brand names. Most of the drugs issued serve the same purpose; however, due to product differentiation, consumers develop diverse levels of product preferences, and thus they may perceive the products offered by their preferred supplier to be of high quality.

Similarly, publishing companies provide students with similar publications such as magazines. The publishing companies have differentiated themselves based on location, which is evidenced by the view that the students can access their publications through the University Union shops at a reduced price.

Sexton (2008) asserts, “Shoppers are not willing to travel long distances to purchase similar items, which is one reason for the large number of convenience stores and service stations and minimarts” (p.396).

Most students have realised that the different brands of publications such as academic journals do not differ; therefore, the accessibility of their product in the market may influence the consumers’ purchasing decision. According to Sexton (2008), product differentiation enables monopolistic competitors to have an influence over the price of their products.

The behaviour of the publishing companies can also be explained by the view that there is a large number of publishing companies. Examples of the competing firms include the Wall Street Journal, Barrons, the Economist, Harvard Business Review, and Forbes amongst others.

Most of these companies target students in different learning institutions as their potential customers. Moreover, there is no law that bars the publishing companies from offering students their products through the union shops. Consequently, the degree of rivalry in such as submarket is likely to be high (Sexton 2008).

In order to attract students, the firms are required to adopt effective market penetration strategies such as providing students with different academic publications through their libraries. However, a large number of sellers limit the firms’ ability to control the market. Despite this aspect, the firms are committed towards improving their competitiveness.

Therefore, the firms are forced to adopt effective competitive strategies, for example by incorporating a price discount or improving their service delivery. For instance, the firms may provide students with an opportunity to subscribe for library services at a reduced price (Sexton 2008). If a particular firm in such a market increases the price of its products, customers have an option to purchase from its competitors.

Another major characteristic of a monopolistically competitive market is that entry to the market is free. Therefore, competing firms can freely enter the market and provide consumers with substitute products. The threat of new entrants tends to reduce the level of economic profit. However, considering the view that the publishing firms are profit-oriented, they are forced to formulate effective strategies in order to survive.

According to Hall and Lieberman (2013), monopolistic competitors are motivated by the need to maximise profit. Therefore, they tend to move along the demand curve up to a point that will lead to profit maximisation. Furthermore, monopolistic competitors have the option of shifting their demand curves rightwards.

This goal is achievable via developing products that are more appealing and adopting strategic locations hence attracting consumers. Other forms of non-price competition include offering product guarantees, better services, advertising to inform the consumers, and free home deliveries.

Adopting non-price competition improves an organisation’s ability to maximise profit. Despite their effectiveness in influencing the consumers’ purchase decision, monopolistic competitors do not have extensive market powers due to the existence of a large number of rival firms, which offer close substitutes.

This analysis shows that the aforementioned behaviour by publishing companies such as the Economist and the Financial Times can be explained based on two main frameworks, which include price discrimination and monopolistic competition. However, a number of conditions must be satisfied in order for a firm to adopt any of the two strategies.

For price discrimination to occur, the market must be characterised by some degree of imperfection. Secondly, a firm must be in a position to split the total market into a number of submarkets. Thirdly, the consumers must be characterised by different price elasticity of demand.

These conditions provide the suppliers with an opportunity to set different prices for the same product. Therefore, the firm is in a position to maximise its profit by attracting a large number of customers. In most cases, price discrimination is incorporated with the objective of creating welfare effect on the part of the consumer.

The publishing companies are established with the objective of maximising profit. Consequently, they have an obligation to adopt effective pricing strategies. Moreover, the publishing companies operate in an industry that is characterised by intense competition sue to the many firms in the industry.

In order to survive in such an industry, the publishing companies are forced to offer their products to students at highly discounted prices. This aspect leads to the development of a high level of customer loyalty. The firms are in a position to attract and retain a large number of customers. Therefore, the monopolistic competition framework can best explain the behaviour of the publishing companies.

Price is a critical component in the survival of businesses. Moreover, most markets are experiencing an increment in the intensity of competition.

Therefore, in order to survive in the long term, it is imperative for businesses to adopt effective pricing strategies in order to maximise their profit, which can be achieved by adopting the concepts of price discrimination. Furthermore, firms can also adopt strategies that will set them as effective monopolistic competitors.

Boyes, W 2011, Managerial economics , Houghton Mifflin, Boston.

Cowan, S 2007, ‘The welfare effect of the third degree price discrimination with non-linear demand functions’, Journal of Economics , vol. 38 no. 2, pp. 419-428.

Hall, R & Lieberman, M 2013, Economics; principles and applications , Cengage Learning, Mason.

Hirschey, M 2009, Managerial economics , Cengage Learning, Mason.

Muller-Langer, F 2008, Creating R&D incentives for medicines for neglected diseases: An economic analysis of parallel imports, patents and alternative mechanisms to stimulate pharmaceutical research, Gabler, Wiesbaden.

Sexton, R 2008, Exploring economics , Thomson, Mason.

Varian, H 2010, Intermediate microeconomics , University of California, Berkeley.

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Conclusion of Market Structure - What is a Monopoly?

Published Date: 23 Mar 2015 Last Modified: 23 May 2017

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Keywords: perfect competition, monopolistic competition, oligopoly, monopoly

Introduction

Monopoly occurs when there is no competition and therefore the supplier has a very high degree of pricing power. In addition, monopoly also is a situation in which a single organization or group owns all or nearly all of the market for a given type of product or service. Besides, it also contains several characteristic, example and diagram in monopoly market.

In addition, there are four common types in competition free market which is perfect competition, monopolistic competition, oligopoly and monopoly. There are different meaning, features and examples in these four common types in a market.

A monopoly is when there are many buyers but there is only one seller that controls the supply of a product and its price. This allows the supplier to charge higher prices than if there was competition. Burkett, John P. (n.d, pg345) states that if a product has no close substitutes and a single seller, economists say that its market is a monopoly and its seller is a monopolist. Monopoly is like a market structure in which one company sells a special goods into which entry is blocked in which the single company has considerable control over the product price. So, consumers have no choice to buy their product and service. There is few government agencies keep the formation of monopoly under control, especially in markets such as cable companies like Tenaga National and media.

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Characteristics of Monopoly

Monopoly market structure is selling the product which has no close substitutes with others. The characteristics of a monopoly market are:

Single Seller

There is only one seller in a monopoly market. The seller controls the supply of a product and decides the product price. Besides, a monopolistic also control over the entire market because there is a single particular services in the market obtain a lot of purchasers

Unique Product without close substitutes

In a monopoly market, their product and service are special and unique. They have their own idea and design for the product and service. All the units of a product are similar and there are no alternative to that commodity in the firm. The firm are controlling over the market by offering a product that is not same with other. The firm may use specialized information like trademark and copyright in order to establish legal authority over the production of some goods and services.

Barriers to Entry

Normally, monopoly situation in a market can continue only when other company does not enter into the industry. In a monopoly market, they have no others competitor because barriers of enter are very strong. It would be prevent and discourage to enter this market to be a competitor. Therefore, a monopoly presents barriers to prevent potential competitors from entering the market. The barriers may even be legal in that the firm to take benefit of copyrights, tariffs and trade restrictions and others. If want continue the monopoly market should not be no entry for new firms.

Profit in the Long Run

The seller can earn more profit as he can if there is no any fear of competitive seller in the monopoly market. In other hand, if the seller gets unusual profits in the long term, he cannot be simply quit from this market. However, this is impossible under perfect competition. If unusual profits are available to a competitive company, other companies will enter the competition with the result unusual gains will be eliminated.

Lack of Competition

When the market need to serve like a monopoly, the lack of business competition are the best benefit for the monopolistic. They also need to barriers to entry for ensure other firms not easily come in the market running their business. For example, cable companies are the monopoly in market. They control all the supply of the product and a lot of buyers.

Since there is only one producer in monopoly, the company's demand curve represents the industry demand curve. The demand curve for a monopoly firm is downward sloping, which shows the average revenue or price for every unit of output sold. Marginal revenue is additional in total revenue from selling one more unit. Total revenue is the prices multiply with quantities. The graph shows a linear demand curve and MR curve.

For example, if the quantity ranges from 0 to 5 units of cable TV, the MR is positive (MR>0) and demand is elastic where price decrease will increase the TR. At the quantity of 5 units of cable TV would lead to negative MR (MR<0) and this range the demand is inelastic because drop in price would decrease the TR. TR is maximized when MR is zero.

Conclusion of Monopoly

In conclusion, monopoly is only a seller but many buyers in a market. A monopolist is selling unique product and the design and idea create by his own. The seller is 'price maker', he decided to set the product price and maximize the profit. Therefore, monopoly is an absence of competition, which often results in high prices. Besides, a monopolistic also needs to control some company no entry in monopoly market because some firms are strong to take advantages in your company.

Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly

There are several market structures in which firms can operate. The type of structure influences the firm's behavior, whether it is efficient, and the level of profits it can generate. Perfect competition means that has a market situation in which a lot of sellers or producers producing and selling homogeneous product. Monopolistic competition is which there are many firms selling differentiate products in a market. In addition, oligopoly is market structure in which there are a few independent companies and monopoly is the only one seller in the market and control the entire market.

Number of sellers

Perfect competition exists when there are a lot of sellers in a market and do not have large seller to determine the product price and monopolistic competition is when a major number of sellers produce goods that are very similar but are perceived by purchaser are different. In an oligopoly market, there have at least two and more firms controlling the market while monopoly means that there are many buyers but only one seller controls the supply of a products and its price. The best example of perfect competition is farming and fast food burger companies like MCD are the example of monopolistic competition. Also, example of oligopoly is coke which has many types like Coca Cola, Pepsi and Cola Turka while the example of monopoly is Microsoft.

Difference between products

This is homogeneous product in perfect competition. The products offered for sale are perfect substitutes of one another and also must identical in every respect to all sellers. Under monopolistic competition, product differentiation allows firms to charge a high price and collect some profits. In oligopoly that are provided homogeneous or differentiated products while monopoly market are no close substitutes, because the monopolistic create and design the product by their own. For instance, farming such as organic vegetables and some tropical fruits are the example of perfect competition and KFC and Burger King are the example of monopolistic competition. Also, automobiles, banking and petroleum are the example of oligopoly. Cable companies such as media and electricity like Tenaga Nasional or Pos Laju are the example of monopoly.

Freedom of entry

Generally, there is free entry and exit in perfect competition and monopolistic competition. If have any barriers to entry for new firms and prices are decided by supply and needs. Companies in an oligopolistic market obtain and retain market control through barriers to entry. The noted of entry barriers are exclusive resource ownership, other government restrictions, high start-up cost and copyrights. Besides, monopoly is not allow other firms to entry and run their business in the market. For example, if a firm wants to sell tropical fruit in this land, it must have resources, labor and money to run the business. If the business was earned less profit, the seller can exit the market without any restrictions. The example of monopolistic competition is if a company wants to entry aluminum industry, the firm must find different quality, brand name and design of the aluminum to run the business in this market.

Ability to set price

Perfect competition is not able to set price because the price is depending on the market price. Therefore, supplier and buyer are not allowed to change the price. For example, the price of the mineral water is set by supply and demand is $1 per bottle. So, all sellers and buyers already know the product price and cannot change it. In addition, under monopolistic competition, sellers can change the price if they want. This is because there are similar product but different brands name, quality and design of the product. Therefore, seller can change the price of the product without influence the entire market. For example, chicken rice in normal restaurant is only sell $3.50 per plate but in Chicken Rice Shop Restaurant is selling $8.90 per plate. This is the different between the quality and design of the product. Under oligopoly, it is a market most depend on strategic. When one seller lowers the price of the product, another business of oligopoly also will follow to lower the price of the product. However, because there are rival firms, oligopolies must attention at how they react to its change in price, output, product or advertising. For example, if F&N Soft Drink Company increases the price of the soft drinks, other soft drink companies will also follow to increase the price. Also, monopoly able to set the price of the product because monopolistic is a price-maker. This is because there is only one seller in the market and decides the price of the product. Therefore, consumers have no choice and need to use their product and service. For instance, Telekom Malaysia Bhd â„¢ is increase the talking time of home telephone to home telephone to RM0.50 sen per minute, so all users need to accept and follow the price by government because monopolistic is price maker.

Conclusion of Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly

In conclusion, the concept of market structure is central to both economics and marketing. Besides, there are difference feature in these four common types of market structure which is perfect competition, monopolistic competition, oligopoly and monopoly. Perfect Competition which is many sellers of a standardized product, Monopolistic Competition which has many sellers of a differentiated product, Oligopoly has few sellers of a standardized or a differentiated product, and Monopoly which is a single seller of a product for which there is no close substitute.

These four market structures each represent an abstract (generic) characterization of a type of real market. Market structure is important in that it affects market outcomes through its impact on the motivations, opportunities and decisions of economic actors participating in the market.

Conclusions and Recommendations

In conclusion, after complete these two tasks, I gained extra knowledge about the detail of monopoly and it's characteristic. In a monopoly market only has one seller running the business in entire market. Therefore, there is no competition with others. A monopolistic also needs to ensure no barriers to entry of other companies.

In addition, free market structure is the competition that comes from allowing anyone who needs to sell a particular service or item to do so. Under market structure there have four common types which are perfect competition, monopolistic competition, oligopoly and monopoly. There are different market with different characteristics and examples.

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Oligopoly and Monopolistic Competition

The market is not a constant structure, but an ever-changing and complex construct. The well-known ideals of monopolistic and competitive markets are not as widely applicable as they would seem at first glance. Monopolistic competition and oligopoly are examples of mixed market systems. In terms of output and pricing, they are located between monopoly and perfect competition. This essay presents their definitions and compares them to the perfect competition model.

There are several conditions and factors that define oligopoly and monopolistic competition. The number of firms that enter the market is the most important defining condition, as this number dilutes the monopolistic pricing toward the product’s marginal cost (Mankiw, 2018). The marketing product between firms in these settings is similar. Although it could be identical in an oligopoly, it stays partially unique in monopolistic competition. Firms from these market systems compete for the same customers. Both models, unlike the perfect competition model, allow firms to have an influence on the price.

The monopolistic competition model allows firms to act as a monopoly to a certain degree. However, as Mankiw (2018) states, in the long run, “when firms are making profits, new firms have an incentive to enter the market” (p. 323). The demand curve in this model is downward-sloping, while in the perfect competition model the demand curve is horizontal. This leads to a self-balancing system, where the more firms enter the market, the less the demand will be, and the more firms will have an incentive to exit the market (Mankiw, 2018). The freedom of entry and exit to the market leads to production levels kept at a minimum of the average total cost (Mankiw, 2018). Since the product price is not equal to its marginal cost as in the perfect competition, firms are encouraged to attract customers.

An oligopoly occurs in a market that has a small number of firms covering the majority of that market’s demand. It is defined by a high concentration ratio, which drives the largest firms to be wary of each other’s actions and reactions. Mankiw (2018) states that “a small number of sellers makes rigorous competition less likely and strategic interactions among them vitally important” (p. 321). This approach is defined by a mix of cooperation and self-interest, which are often unbalanced. Nowadays, in order to gain higher ground and a bigger share, oligopolistic firms tend to develop technologies that could potentially turn the market into monopolistic (Ganapati, 2018). In an oligopoly, firms tend to increase production until output and price effects are balanced out.

The product output in this model is less than under the perfect competition model due to profit-driven monopolistic tendencies. As fewer firms are involved in the market, the price gets higher. The prisoner’s dilemma guarantees that all competitors would not set the output or prices close to monopoly parameters due to fear of other companies cheating them by producing more (Mankiw, 2018). In this state of cautious interaction and thorough examination of market influences, firms achieve a lesser outcome and lower profits.

These two market models are more natural in modern economics, as the market is easier to enter. The number of firms on the market depends on the product, and, as Mankiw (2018) argues, “it is hard to decide what structure best describes a market” because “the reality is never as clear-cut as theory” (p. 322). In conclusion, these models allow economists to give an evaluation of a market, but cannot be used as a constant, and markets tend to fluctuate between them.

Ganapati, S. (2018). Growing oligopolies, prices, output, and productivity. [Master’s Thesis, Georgetown University]. Web.

Mankiw, G.N. (2018). Principles of economics (8 th ed.). Cengage Learning.

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Monopoly: Compilation of Essays on Monopoly | Markets | Economics

Here is a compilation of essays on ‘Monopoly’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Monopoly’ especially written for school and college students.

Essay on Monopoly

Essay Contents:

• Essay on the Disadvantages of Monopolies

Essay # 1. Introduction to Monopoly :

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The market, form of monopoly is the opposite extreme from that perfect competition. It exists whenever an industry is in the hands of single of producer. In the case of perfect competition there are so many individual producers that no one of them has any power over the market and an; one firm can increase or diminish its production without affecting the market price. A monopoly, on the other hand, has power to influence the market price. By reducing its output, it can force the price up, and by increasing its output it can force the price down.

The word monopoly is made of two words; MONO +POLY. Here ‘Mono’ means one and ‘Poly’ implies the seller, thereby the literal meaning of the word Monopoly is one seller or one producer. Thus, pure monopoly refers to that form of market organisation wherein there is single firm (or producer) producing a commodity for which there are no good or close substitutes.

According to Watson, “A monopolist is the only producer of a product that has no close substitutes.” Changes in prices and outputs of other goods sold in the economy must leave the monopolist unaffected. Conversely, changes in the monopolist’s price and output must leave the other producers of the economy unaffected.

Essay # 2. Features of Monopoly :

(i) Single Producer:

There is a single firm producing the commodity in the market.

(ii) No Close Substitutes:

For the monopoly to exist single producer is the necessary condition but not a sufficient one. It is also essential that there should be no close substitute of the commodity in the market. This second condition would be even more difficult to fulfil than the first, since there are few things for which there is no substitute.

For instance, Usha are produced by a single firm alone but there are close substitutes of Usha fans that are available in the market in the form of Relifans, Khaitan Ashoka, Crompton, etc. Hence, though the firm producing Usha fans is single yet it cannot be termed a monopoly firm.

It is, therefore, essential for a monopoly to exist that there should be no close substitutes available in the market. This condition can be stated in other words as that the cross elasticity of demand for the output of the firm with respect to the price of every firm’s product is zero.

(iii) Barriers to the Entry:

The entry into the industry is completely barred or made impossible. If new firms are admitted into the industry, monopoly itself breaks down. This ban on entry may be legal, natural or institutional but it must essentially be there.

(iv) Firm and Industry:

Since in monopoly there is single firm producing the commodity, hence the difference between firm and industry vanishes automatically.

(v) Downward Sloping AR and MR Curves:

The monopoly firm is like an industry, and faces a downward sloping demand curve for its product; thus, it has to lower its price in order to sell more. For, it is this nature of demand curve that determines the nature of average and marginal revenue curves. Under perfect competition, we know, average revenue and marginal revenue curves coincide in a horizontal line. But that is not so under monopoly.

With a monopoly, however, the average revenue curve, which is the same as the market demand curve, is downward sloping. Furthermore, the marginal revenue curve does not coincide with the average revenue curve rather, it remains below it. Thus, for a monopolist firm both AR and MR curve are downward sloping and MR remains below AR as shown in the diagram.

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