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Abstract Difference Between Perfect Competition and Monopoly
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Oligopoly is a market structure in which only few firms are having control over market supply and since there are high barriers of entry and exit from the oligopoly market, the existing firms enjoy the monopoly kind position.( Parkin, 2011) Following are some of the salient features of Oligopoly Market:
1. Interdependence:
Firms operating under oligopoly are interdependednt in the decision making process. The reason for the same is that the number of firms operating and competing in the market are very few and any change in price or putput level by one firm will have a direct influence on the rival firms and as a result even the rival firms are forced to retaliate by changing in price and output. Thus, under oligopoly a firm not only consider its own demand curve but also of its rivals in the industry. Thus, no firm in oligopolist industry can fail to take into account the reaction of other firms to its price and output policies and therefore there is a strong interdependence among the firms under oligopoly.
2. Importance of advertising and selling costs:
Since the number of firms are very few in oligopoly market, each individual firms face intense competition from its rival firms and thus rely heavily on advertising of their products to lure the customers and enhance the demand of their own product. Thus, each firm employ aggressive and defensive weapons to gain a greater share in the market and to maximise sale. Unlike, perfect competition and monopoly market structure where advertisement and sales promotion are considered unnecessary, such expenditure is an extreme necessity of an oligopoist firm.(Varun, 2012)
3. Group behaviour:
Group behavior is another important feature of oligopolist market. Each firm under theis market str...
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...nomics/oligopoly/oligopoly-in-practice/collusion-and-competition/ (Accessed: 13th January, 2014).
• Geoff Riley (2012) Oligopoly – Collusion between Firms, Available at:http://tutor2u.net/economics/revision-notes/a2-micro-oligopoly-collusion.html(Accessed: 13th January, 2014).
• Varun (2012) 6 essential characteristic features of oligopolistic market, Available at:http://tutor2u.net/economics/revision-notes/a2-micro-oligopoly-collusion.html(Accessed: 13th January, 2014).
• Michael Parkin (2011) 'Markets in Action', in CFA Institute (ed.) Economics. Boston: Custom, pp. 38-54.
• Michael Parkin (2011) 'Oligopoly', in CFA Institute (ed.) Economics. Boston: Custom, pp. 112-128.
• Michael Parkin (2011) 'Market Structures: Perfect Competition', in CFA Institute (ed.)Economics. Boston: Custom, pp. 154-172.
• TR Jain (2008) Market Structures, New Delhi: University of Delhi.
Analysis of profit oligopoly identical as monopoly profits: in the short term it can get positive, zer...
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Princeton, 1963. Hailstone, Thomas and Rothwell, John. Managerial Economics, pp. 93-95. Prentice Hall, 1993.
Harris, Larry (2003). Trading and Exchanges: Market Microstructure for Practitioners. Oxford University Press. p. 290.
Because there are few firms in an oligopoly industry, each firms output is a large share of the market. As a result, each firm's pricing and output decisions have a substantial effect on the profitability of other firms. In addition, when making decisions relating to price or output, each firm has to take into consideration the likely reaction of rival firms. Because of this interdependence, oligopoly firms engage in strategic behaviour. Strategic behaviour means when the best outcome of a firm is determined by the actions of other firms.
It is a well-known fact that every firm wants to be successful in its business. Sometimes it is difficult to decide what kind of actions to take in order to achieve it. Especially, it is hard on oligopoly market because this is one of the most complicated market structures. Oligopoly includes many models and theories such as duopoly where are just two producers and which pricing decisions remind monopoly, kinked demand curve, which decreases economic profit, and cartel, which brings economic profit just for the short-run. However, to be a successful oligopolistic firm in the long run, managers should include in the planning process such economic theories and models as producer interdependence, the prisoner’s dilemma, price leadership, nonprice adjustments, and correct using of barriers to entry.
Topic A (oligopoly) - "The ' An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies.
There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
In the short run, oligopolies are. able to earn abnormal profits, but in the long run as well they are. able to sustain abnormal profits due to the barriers to entry and exit. Then the s The barriers act as a strong deterrent to firms that want to come in. the industry and " eat into" the abnormal profits and then exit the market.
The. An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share. In a Monopoly, there is one firm that controls the market, and there are no similar products being sold by other companies. Advertising is therefore used to encourage people to buy more of their product. In a monopoly there is a downward sloping demand curve, the reason for this is that a firm must lower the price to sell an extra unit of their product.
Monopolies have a tendency to be bad for the economy. Granted, there are some that are a necessity of life such as natural and legal monopolies. However, the article I have chosen to review is “America’s Monopolies are Holding Back the Economy (Lynn, 2017)” and the name speaks for itself.
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...
With there being several firms for 3 of the markets, the consumer benefits as they can find the cheapest producer, resulting in the producer being at a disadvantage as they could loose business. In a perfect competition market, the firm is unable to choose the price whereas in an oligopoly the price is chosen by the firm this is beneficial for the producer as it increases their profit margins. However, this is harmful for consumers as they will have to pay the higher prices.
The type of firm we are going to investigate in this assignment is an oligopolistic firm. The essence of an oligopolistic market is that here are only a few sellers. As a result, the actions of any one seller in the market can have a large impact on the profits of all the other sellers. Oligopolistic firms are interdependent in a way that competitive firms are not. The company we chose to study is Petronas.