Monopolistic Competition Market Structure Analysis Get Solution

Question: Discuss about theMarket Structures in Australiafor Monopolistic Competition and Oligopoly. Answer: Introduction All industries have a prevailing market structure. Market structure refers to the specific social organization that prevails between buyers and sellers in a market. It is the pattern in which the constituent parts of a given market are arranged. This structure examines how buyers and sellers are linked together. It determines the relationship between buyers and sellers in the market and the relationship between the sellers in the market to each other. In addition, it examines the relations of buyers in a market to each other. There are various types of market structures among them perfect competition, monopoly, monopolistic competition and oligopoly. It is worth noting that certain characteristics of a market influence the firms behavior and strategy. One of the most distinguishing features is the number of firms in a particular market. Usually, this affects the output size and price decisions of companies in the market. Additionally, the presence of similar or differentiated products determines the pricing techniques of firms (Khan 2016). Likewise, the cost of information is an important aspect in any market. The lower the cost of information, the fewer opportunities available for a firms pricing policies and quality distinctions. The barriers to entry also determine whether economic profits will exist in the long run. Monopoly Market Structure A monopoly market structure is one in which there is only one seller. In this market, the single firm dominates the entire market, and there is no competition. The single firm determines and sets its prices and output levels that maximize their profit. Furthermore, the products produced by the monopolies are unique and have no close substitutes. As a result, the demand for monopolist products is inelastic, and an increase in output price may not lead to a loss in sales. There are also high barriers to entry and exit attributed to high technological and capital investments required in the development of monopolistic firms. What is more, there exists imperfect information between the sellers and buyers regarding the quality and price of the product In most cases, monopolies in Australia arise due to blocked entry caused by existing firms. Often, incumbent firms use economies of scale in production to smother entrants by supplying the entire market with cheaply priced products than its potential rivals. Also, government legislations and enactment of barriers to entry in the form of permits, patent rights, and licenses result in monopolies in Australia (Irvine 2010). Other firms opt to control the supply of all strategic raw materials thereby making it difficult for rival companies to operate. The Australian Post is an infamous example of a monopoly in Australia. The company uses its market power to deliver most of its monopoly profits. It uses predatory pricing and legal barriers to deter other firms from attaining a market share in its niche. Monopolistic Competition This market structure is a merge between the perfectly competitive market and a monopolistic market. The number of sellers is large enough to create competitive conditions in the market. However, the goods and services provided by the various sellers in the market are heterogeneous and slightly differentiated. The firms are price makers since they have market power over the product that they sell, given that they do not have close substitutes. Moreover, there exists imperfect information among sellers and buyers brought about by product differentiation, product quality and price differentials (Baum and McPherson 2009). The market demand curve of a monopolistic competitive firm is negatively sloped. In the short run, the economic profits are positive. However, in the long term, the economic profits are zero due to low barriers to entry into the market. The pizza places and restaurants are a perfect example of monopolistic competitive firms in Australia. The main places and restaurants that produce pizza include Dominos Pizza, Australias Pizza House, Borrusos Pizza and Pasta, Little Caesars Pizzeria and Pizza Gusto, among others. All these pizza restaurants compete on the same item, but each business has slightly differentiated its product. As such, each pizza place offers something different and possesses some element of uniqueness while competing for the same customers (Pettinger n.d.). It is the perceived or real differences in their pizzas that determine customer loyalty to a particular pizza house. Oligopolistic Market Structures An oligopolistic market structure is made up of few large firms that dominate a particular market. As such, few large firms have a significant market share and market power, enabling them to control the market conditions. There is limited competition in this market structure. Usually, the large firms collude explicitly or implicitly to prevent rival firms from entering the industry by erecting high barriers to entry. It is crucial to note that companies are price makers and collude with each other to set high prices that maximize their profits (Australian Oligopolies 2014). The collusion of oligopolistic forms may result in the development of cartels. It is noteworthy that oligopolistic firms often compete on non-price criteria such as warranties, advertising and gift certificates to entice and inculcate customer loyalty. Technological and cost barriers discourage the entry of potential competitors into oligopolistic markets. Besides, there is imperfect information between the sellers and buyers in this market. The Air transport sector is an excellent example of an oligopolistic market structure. In this sector, there are many airlines. However, few large firms dominate the market and hold a huge market share of the industry. The major airlines in Australia include the Qantas Airways, Pacific Blue Airlines and the Airnorth (Major Airlines 2016). These firms dominate the air transport industry and set prices that maximize their profits while at the same time keeping their competitors at bay. Conclusion A market structure could either be perfectly competitive, monopolistic, oligopolistic, or monopolistic competitive. By and large, the market structure is a vital element in every market as it determines the relations between the buyers and sellers in a particular market. What is more, it determines the degree of competition and the pricing techniques of individual firms. Knowing the market structure is crucial as it allows a firm to determine its strategies and techniques for profit maximization. Besides, the form of market structure determines the degree to which a business can alter its prices without necessarily losing its loyal customers. Reference List Baum, S. and McPherson, M. 2009, Monopolistic Competition and the Very Small College. [Online] Available from: https://www.chronicle.com/blogs/innovations/monopolistic-competition-and-the-very-small-college/31279 [Accessed 6 Dec. 2016]. Esposito, B (2014), 15 Australian Pizza Places You Need To Visit Before You Die [Online] Available from https://www.buzzfeed.com/bradesposito/aussie-pizza?utm_term=.kyzKYLQvJ#.bneK3wGR9 [Accessed 6 Dec. 2016] Irvine, J. (2010). Get out of monopoly free cards can't be left to the roll of the dice. [Online] The Sydney Morning Herald. Available from: https://www.smh.com.au/federal-politics/political-opinion/get-out-of-monopoly-free-cards-cant-be-left-to-the-roll-of-the-dice-20101026-172ax.html [Accessed 6 Dec. 2016]. Khan, S. (2016) Oligopolies and Monopolistic Competition [Online] Available from: https://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-competition-topic/monopolistic-competition-oligop/v/oligopolies-and-monopolisitc-competition[Accessed 6 Dec. 2016]. Nations online. (2016). Major Airlines of Australia/Oceania. [Online] Available from: https://www.nationsonline.org/oneworld/Airlines/airlines_oceania.htm [Accessed 6 Dec. 2016]. Pettinger, T. (n.d.). Monopolistic Competition. [Online] Economics Help. Available from: https://www.economicshelp.org/blog/311/markets/monopolistic-competition/ [Accessed 6 Dec. 2016]. Policonomics (2016), Market Structures [Online] Available from: https://www.policonomics.com/lp-market-structures-market-structure/ [Accessed 6 Dec.2016] The Grapevine. (2014). Australian Oligopolies. [Online] Available from: https://blog.adonline.id.au/oligopolies/ [Accessed 6 Dec. 2016].