A competitive market is one in which a large numbers of producers/firms compete with each other within specific markets in order to satisfy the wants, needs and essentials of a large number of consumers. In a competitive market no there is no single producer, or group of producers, and no single consumer, or group of consumers, who can dictate how the market operates and who is actually leading, following and who is the weakest link. Nor can they individually determine the price of goods and services, and how much will be exchanged. Competitive markets will therefore form under certain conditions. Some may question what makes a market competitive, but the answer to this is massive in itself as there are endless possibilities to why majority of markets are extremely competitive such as pricing, product, distribution, consumer behaviour types etc.
A non-competitive market on the
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Oligopoly is a market dominated by a few producers. The market can be international, national, or local. The main characteristic of an oligopoly is that they have pricing power. However, unlike a monopoly that consists of a single firm dominating the market, an oligopolistic firm must take into consideration how the other producers will react to any changes in price. It is this mutual interdependence of the few firms producing the product that make an oligopoly different from a monopoly. Sometimes, an oligopoly will try to increase its market power by forming a cartel, which is a group of firms acting in unison. An oligopolistic firm is generally a large firm that had to invest a lot of capital to produce the product, such as boats, cars, and household appliances. This large initial investment of capital is often a major barrier to entry to oligopolistic markets. Other barriers to entry include patents, control of resources, and the ability to engage in retaliatory pricing to prevent firms from entering the
Consumers would lose-out from increased competition in the short-run, however in the long-run consumers would ultimately benefit from increased competition. High levels of competition prevent businesses from abusing their market power, such as setting prices above or below what a perfectly competitive market would dictate to be at equilibrium and also encourages businesses to be innovative instead of becoming complacent, relying on consumer’s lack of choices.
with a concentrated market share, an example of an oligopoly today. would be Nike, Reebok and Adidas for shoes. Most industries today are oligopolies, the possible reasons for this. would be that oligopolies in contrast to monopolistic competition. would be able to earn abnormal profits in the long run as well as the short run, as shown in the previous section.
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.
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.
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. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of 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.
Monopolies are when there is only one provider of a specific good, which has no alternatives. Monopolies can be either natural or artificial. Some of the natural monopolies a town will see are business such as utilities or for cities like Clarksville with only one, hospitals. With only one hospital and there not being another one for a two hour drive, Clarksville’s hospital has a monopoly on emergency care, because there is not another option for this type of service in the area. Artificial monopolies are created using a variety of means from allowing others to enter the market. Artificial monopolies are generally rare or absent because of anti-trust laws that were designed to prevent this in legitimate businesses. However, while these two are the ends of the spectrum, the majority of businesses wil...
A duopoly, only two competitors in the market, is the extreme basic form of an oligopoly, few competitors in a market. Duopolists engage in a non-cooperative game because firms are not allowed legally by many states to sit together and form a cartel where they can agree on certain prices, quantities, strategies, etc… Non-cooperative games can take the form of cournot, both firms move together and choose their quantities simultaneously, or stackelberg, the leader firm moves first and sets its output quantity and then the follower firm moves second based on the first firm's move. Given the assumption that each firm is able to have a full information of the other, they both realize the market power of each respective firm. Deviating from the plan/quantities will lead both firms to cheat and hence, the race to the bottom begins. This can be illustrated by showing the profit function of both firms by using Dixit (1979) equation:
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.
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
Markets have four different structures which need different "attitudes" from the suppliers in order to enter, compete and effectively gain share in the market. When competing, one can be in a perfect competition, in a monopolistic competition an oligopoly or a monopoly [1]. Each of these structures ensures different situations in regards to competition from a perfect competition where firms compete all being equal in terms of threats and opportunities, in terms of the homogeneity of the products sold, ensuring that every competitor has the same chance to get a share of the market, to the other end of the scale where we have monopolies whereby one company alone dominates the whole market not allowing any other company to enter the market selling the product (or service) at its price.
The four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly entails various characteristics that exemplify the level of competition within the market. These distinct features include having a number of sellers, producing a homogeneous or differentiated goods or services, pricing power, a level of competition, barriers to entering or exit the markets, efficiency, and profits. Due to the high profit and revenue some firms face within the various market structure, barriers to entry are put in place to restrict new competitors from entering. Natural, artificial, and governmental barriers play a vital role in firms ability to stay in a market, be productive, efficient, and competitive. Firms reaction to price changes, the government’s ability to create a price, and the influence of international trade on the market structures, are essential factors that economist evaluate the various market structures. Overall, the competition between market structures may not always result in the same outcome, due to the behavior and interaction between consumer’s and buyers, but in the end, both the buyer’s and seller’s are needs are
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 ...
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
Perfect and monopolistic competition markets both share elasticity of demand in the long run. In both markets the consumer is aware of the price, if the price was to increase the demand for the product would decrease resulting in suppliers being unable to make a profit in the long run. Lastly, both markets are composed of firms seeking to maximise their profits. Profit maximization occurs when a firm produces goods to a high level so that the marginal cost of the production equates its marginal