A Monopoly can be described as a market situation where one producer (or a group of producers acting in concert) controls supply of a good or service, and where the entry of new producers is prevented or highly restricted. Monopolist firms (in their attempt to maximize profits) keep the price high and restrict the output, and show little or no responsiveness to the needs of their customers. Most governments therefore try to control monopolies by adopting the following ways: 1. imposing price controls 2. taking over their ownership (called 'nationalization') 3. by breaking them up into two or more competing firms. Monopolistic competition on the other hand is a market situation midway between the extremes of perfect competition and monopoly,
There are different types of monopoly: natural, legal, private, or public (government) c. A monopolist has full control of the supply of the product, hence the elasticity of demand for a monopolist product is zero. d. There is no close substitute of a monopolist’s product in the market, thus, the cross elasticity of demand for a monopoly product with some weak substitutes is very low. e. There are restrictions or barriers on the entry of other firms in the area of monopoly product. f. A monopolist can influence the price of the product. He is a price maker.
The reality is that a stable equilibrium is never reached since new products come and go all of the time, some do better than others. Existing products within a market will typically go through a product life cycle that affects the volume and growth of sales, hence it can now be determined that the long term effect of monopolistic competition offers a certain level of uncertainty yet profits in the long term look promising.One of the implications of monopolistic competition is that an inefficient outcome is
The three concepts try to explain the behaviour of firms in an oligopoly market. In a market where there is a few number of sellers, firms sometimes behave as if they are monopolies (Yu et al., 2000). They decide on the volume of products that they produce and the prices. In such a market, consumers are the ones that suffer given the fact that they have limited options. Unlike other markets that offers customers a variety of choices such in perfect competition, in an oligopoly market, the customers have limited alternatives (Ledvina, and Sircar, 2011).On the other hand, and producers sometimes have an opportunity of forming cartels and fix desired prices.
Imperfect competition is different with perfect competition, which has several characters. Perfect competition means in a market no one or two supplier can decide the price, suppliers offer similar products, suppliers can leave with free of charge and there is no barricade for others to enter. A typical example of imperfect competition is monopoly, which there are only one supplier in an industry and supplier control the price. Monopolies often prevent other to enter the market. In this situation, the market is controlled by the only one supplier for reasons, like patenting and policy.
There are 2 types of price controls: price ceilings and price floors. A price ceiling is the legal maximum price for a good or service, while a price floor is the legal minimum price. Although both can be imposed, the government usually only selects either a ceiling or a floor for particular goods or services.When prices are established by a free market, then there is a balance between supply and demand. When the government imposes price controls, then there will be either excess innsupplyor demand, as the legal price is often very different from the market price. Indeed, the government imposes price controls as it is not satisfied with the market price.A price ceiling creates a shortage when the legal price is below the market equilibrium price, but has no effect on the quantity supplied if the legal price is above the market equilibrium price.
Very few sellers of the product The number of sellers dealing in homogenous or differentiated product is very small that the pricing and output policy of the individual firm can influence the industry price and output. Each firm controls a large share of the market, hence, changing its output will make a noticeable effect on market activities. b. Interdependence An oligopolist has to take into consideration the actions and reactions of other oligopolists in its pricing and output determination. The cross price elasticity of demand for their products is very high because of the availability of close substitutes. This is also the reason why firms do not normally like to change their prices and output levels.
They concluded that low cost strategy is not able to provide sustainability in an organisation in the long term and cannot provide a competitive advantage. They mentioned that this what it does, it causes prices wars in firms. So, they believed that the best strategy is best cost strategy which entails providing the best value for a relative low price. The cost leadership strategy involves producing and selling volumes of standard and no frills products and underprizing everybody(Datta
Monopoly is an industry that composed of a single seller of a product with no close substitutes and with high barriers to entry. For example, Microsoft Corporation Characteristics of monopoly Single seller the firm which is also known as the monopolist and the industry are one and the same. Price maker the firm is able to choose a profit maximizing price from a range of prices imposed by market conditions and competition. No close substitute for the product this is because there is no close substitutes for its product, the monopoly faces a little competition. Barriers to entry for new firms It is legal or natural constraints that protect a firm from potential competitors.
The market is dominated by a few firms; firms either sell identical or differentiated products. There are significant barriers to entry, meaning that other firms won’t be able to enter the industry thus firms can make supernormal profit in the long run. The firms react to rival’s change in price and output; therefore they practice non-price competition, such as: • Gaining customer reliability • Price collusion • Additional services and advertisings to appeal