Perfect Competition
In a situation of perfect competition, there are several businesses that all manufacture the same goods. The combination between supply and demand in the market determines the product’s market price. Every business in perfect competition deals with a fully elastic demand curve, allowing it to sell as much of its goods as it likes for the going rate. Each business must accept the market price as offered since each firm is a price taker.
Perfect information exists in a perfect competition. This indicates that both buyers and sellers in the market are fully informed of the goods being sold, their pricing, and the market’s circumstances. According to Kyle (2019), a “pure” or “perfect” market is a common term used to characterize this kind of market structure. In microeconomics, the idea of perfect competition is used to assist businesses decide on the best level of output and price. Businesses in an ideal competitive environment are thought to be logical and profit-maximizing. They will generate as much as they can to maximize their revenues. The output level that generates the most profit for the company at the current market price is the optimal output level. According to Kyle (2019), Perfect competition is sometimes used as a standard to measure other market models. It serves as a model for understanding how actual markets operate. Perfect competition does not, however, actually occur in the real world; it is a theoretical idea.
Perfect competition does not occur in the actual world for a variety of reasons. First of all, it is challenging to locate markets with many businesses offering the same goods. Second, it is improbable that there would be perfect information even if such a market did exist. Sellers and buyers would not be fully informed about the things being exchanged, their pricing, and the market’s circumstances (Kyle 2019), In addition, it is improbable that all of the businesses manufacturing similar goods in a market with complete knowledge would be logical and profit-maximizing.
Pricing Strategy
Firms are price takers and there is perfect knowledge in a perfect competition. This implies that the interaction between supply and demand in the market determines the market price. Every business in perfect competition deals with a fully elastic demand curve, allowing it to sell as much of its goods as it likes for the going rate. According to Kyle (2019), each business must accept the market price as offered since each firm is a price taker. Thus, charging the market price is the most basic pricing approach in a situation of perfect competition. They must accept the market price as given since they have no power to change it. The combination of supply and demand in the market determines the market price.
A grocery shop is an actual example of a business having this kind of market. Due to their inability to change the pricing of the goods they sell, grocery shops are considered price takers. The combination of supply and demand in the market determines a product’s market price. Every grocery shop experiences a completely elastic demand curve for the goods it offers, which enables it to sell any quantity of a given good at the going rate. Each grocery store must accept the market price as supplied since they are all price takers.
Monopolistic Competition
In monopolistic competition, several businesses provide a uniform or distinctive good. The flexibility of entry and leave is this market structure’s primary characteristic. As a result, businesses are free to enter and leave the market as the market conditions change. The main distinction between monopolistic competition and perfect competition is the presence of some market power in monopolistic competition. As a result, they can demand a greater price than in an ideal market. They still have to contend with rival businesses on the market, though.
The ability of businesses to distinguish their goods is one of the main characteristics of monopolistic competition. This implies that they can provide a special good or service that sets them apart from their rivals. A restaurant could set itself apart, for instance, by providing a special cuisine or ambiance. Although differentiation can take many different forms, it usually involves some kind of marketing or promotion (Thisse et al., 2018). This is because businesses must explain their unique selling offer to customers. According to Thisse et al. (2018), for businesses engaging in monopolistic rivalry, differentiation may be a potent tactic. They may be able to charge a greater price and draw in more customers as a result. It can, however, also lead to inefficiency, because businesses could spend money on distinctiveness that might be better used on other endeavors, including raising the caliber of their output.
The abundance of businesses in the market is another crucial aspect of monopolistic competition. This indicates that the market share of each company is small. A lot of advertising and marketing may result from the abundance of businesses as they attempt to set themselves apart from rivals. According to Thisse et al. (2018), it may be challenging for new businesses to enter the market due to the vast number of existing businesses. This is due to the possibility that established businesses may enjoy a sizable advantage in terms of consumer loyalty and brand awareness. Monopolistic rivalry may lead to inefficiency. This is due to the possibility that businesses divert funds intended for other purposes—like raising the caliber of their products—instead of investing them in advertising and marketing. In general, monopolistic competition is a sort of market where several businesses provide a uniform or differentiating product. The flexibility of entry and leave is this market structure’s primary characteristic (Thisse et al. 2018). As a result, businesses are free to enter and leave the market as the market conditions change.
Companies set prices in monopolistic competition depending on the demand for their product. To make sure their pricing is reasonable, they also consider the prices charged by other businesses that provide comparable goods. According to Thisse et al. (2018), demand curves in monopolistic competition are downward-sloping for businesses. This is due to the availability of reasonably priced alternatives to their goods from other businesses. Therefore, if a business raises its rates, it will lose clients to other businesses. According to Thisse et al. (2018), businesses can use advertising and other marketing techniques to set their products apart from those of their rivals in a monopolistic rivalry. Because of this, it may be challenging for customers to compare rates and make wise decisions. Monopolistic competition has the major benefit of encouraging innovation and making a wide range of goods available to consumers. The drawback is that it could be challenging for customers to compare rates and make wise decisions.
Oligopoly
In an oligopoly market, a select few major companies control the whole market or sector. Alothman et al. (2020) claim that an oligopoly market is characterized by interdependence, entrance restrictions, and non-price competition. In an oligopoly market, interdependence refers to how dependent one firm is on the others’ sales. This is so because businesses operating in an oligopoly market frequently manufacture comparable or identical goods. As a result, the decisions made by one company in the market might have a big effect on the decisions made by the other companies in the market. According to Alothman et al. (2020), another essential aspect of an oligopoly market is entrance barriers. It is challenging for new businesses to join the market and compete with the established ones because of these obstacles. Entry restrictions may be financial, legal, or technical. Another crucial feature of an oligopoly market is non-price competition. In this kind of market, businesses compete with one another on factors outside pricing. The businesses could compete, for instance, in terms of marketing, customer service, or product quality.
Different oligopoly market forms exist. Collusion oligopoly and contestable oligopoly are the two most prevalent forms. In a collusion oligopoly, the companies competing in the market conspire with one another. This indicates that the businesses have decided to work together rather than compete. This collaboration aims to boost profits by lessening competition. According to Alothman et al. (2020), a market with a contestable oligopoly is one in which the enterprises that make up the market compete with one another. However, there is less competition than there would be in a market with ideal competition. The main distinction between a collusion oligopoly and a contestable oligopoly is that the businesses collaborate in a collusion oligopoly while they compete in a contestable oligopoly.
Pricing Strategy
Companies may employ a range of pricing methods in an oligopoly market to maintain competitiveness and boost profits. According to Alothman, et al. (2020), price discrimination is one of the most widely employed pricing techniques in an oligopoly market. When businesses charge varying rates to customers based on variables like location, time of purchase, or amount purchased, this is known as pricing discrimination. By appealing to many customer segments, this technique enables businesses to take a bigger share of the market. For instance, a business may charge customers who reside in high-income areas a higher price and customers who reside in low-income areas a reduced price. By appealing to both high- and low-income clients, this strategy enables the company to take a bigger share of the market.
Price leadership is yet another frequent pricing technique utilized in oligopoly markets. In this method, one market participant establishes a pricing point, and the other participants imitate it. According to Alothman et al. (2020), businesses with a significant market share or who are market leaders frequently employ this method. These businesses may control the pricing of other businesses in the market and get a bigger market share by establishing the price point. The airline business is one actual case of an oligopoly firm. Few significant companies, including Delta, American, and United, control the majority of the airline market in the United States. These companies have a huge market share and substantial price control.
Monopoly
A monopoly is a market arrangement where a certain commodity or service is produced and sold only by one company. High entry barriers, which hinder other businesses from entering the market and competing, are a hallmark of monopolies. Numerous factors can lead to monopolies developing. A business may occasionally own a patent or copyright that grants it the only authority to manufacture and market a certain commodity or service. Other times, a company could possess a special resource that enables it to manufacture a good or provide a service for less money than other companies.
Monopolies can affect customers in both good and bad ways. Monopolies can, on the one hand, result in greater costs and fewer customer choices. Monopolies, on the other hand, can eventually result in innovation and cheaper pricing. According to Hussain et al. (2020), low consumer choice and high-pricing Monopolies can result in higher pricing and fewer customer choices, which is one of its primary drawbacks. If an item or service is produced by just one company, that company has the authority to decide the price. Additionally, customers have no choice but to purchase from that one company if there are no other businesses in the market. For customers, this may mean higher costs and fewer options.
Long-term innovation and price reductions are possible as a result of monopolies, which is one of their advantages. Because companies may increase their earnings by offering updated and improved items, monopolies have an incentive to innovate. According to Hussain et al. (2020), monopolies also frequently have cheaper long-term prices since they have no rivals. Monopolies are criticized as giving customers fewer options and higher pricing. However, proponents of monopolies contend that in the long term, they may stimulate innovation and drive down costs.
Pricing Strategy
A single company creates all of the market’s output in a monopolistic market structure. This demonstrates that the company has total control over pricing. To maximize earnings, the company would often demand the maximum price that customers are willing to pay. There are a few factors that the monopolist may consider in favor of high prices. First, higher profits result from higher pricing. Second, by limiting supply and enforcing fake scarcity, the company can maintain high pricing. (Hussain, et al. 2020). Due to their inability to compete on price, new businesses may find it challenging to enter the market. In addition to these tactics, the monopolist may also employ brand loyalty and promotion to maintain high pricing. According to Hussain et al. (2020), the monopolist can prevent consumers from looking about for a better price by persuading them that their product is the best or the only one available. The ultimate objective of the monopolist is to maximize their financial gain. They will achieve this by charging whatever amount consumers are willing to pay. Consumers may suffer as a result of high costs and restricted supply of the commodity or service that might result from this.
Google is one such instance of a monopolistic business. Since it holds over 90% of the market share, Google effectively enjoys a monopoly on the search engine industry. The business has been able to preserve its monopolistic status by consistently investing in new technologies. Due to its monopolistic status, Google can set high prices and limit output. For instance, the business has been able to charge exorbitant fees for advertising to appear on its search engine results pages. Additionally, by purchasing prospective rivals like YouTube and DoubleClick, Google has been able to reduce the level of competition. Consumers and authorities have both criticized Google for holding a dominant position. The firm is accused of abusing its monopoly to hinder innovation and competition and of wielding excessive authority. The European Union and the US have both looked at Google for possible antitrust infractions. However, the business has thus far escaped any serious fines.
Case Study
Perfect Competition
The market for agricultural goods is one instance of a perfect competitive environment. There are several little farmers who all produce the same kinds of goods. There are no obstacles to entrance or departure, and every company has a complete understanding of the market. Prices are therefore at the marginal cost of production, and businesses can only make a typical profit. The market for taxi services is another illustration of an ideal competitive environment. There are several little taxi companies that all produce the same goods. There are no obstacles to entrance or departure, and every company has a complete understanding of the market. Prices are therefore at the marginal cost of production, and businesses can only make a typical profit.
Monopolistic Competition
The fast-food industry is an illustration of a market that is monopolistically competitive. There are several businesses, all of which make somewhat different goods. There are no obstacles to entrance or departure, and every company has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing businesses to turn a profit. The market for hair care products is another illustration of a market that is monopolistically competitive. There are several businesses, all of which make somewhat different goods. There are no obstacles to entrance or departure, and every company has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing businesses to turn a profit.
Oligopoly
The market for cars is one instance of an oligopoly. There are a few sizable businesses that all produce similar or somewhat different goods. Entry and departure are severely constrained, and every business has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing businesses to turn a profit. The market for airplane tickets is another illustration of an oligopoly. There are a few sizable businesses that all produce similar or somewhat different goods. Entry and departure are severely constrained, and every business has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing businesses to turn a profit.
Monopoly
The market for water serves as one illustration of a monopoly. There is only one company making the product. Significant entrance and exit obstacles exist, and the business has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing the business to turn a profit. The electricity market is another instance of a monopoly. There is only one company making the product. Significant entrance and exit obstacles exist, and the business has a complete understanding of the market. Prices therefore rise above the marginal cost of manufacturing, allowing the business to turn a profit.
In conclusion, it is obvious that in business, the relation between supply and demand will always determine the price of goods in the market. In all the different market structures, there is a different pricing strategy for each. Improving the product’s quality is one strategy that cuts across to increase price share for a company. Other factors cut in for the different market structures with each company striving to get a huge market share as possible.
References
Alothman, A., & Alqahtani, A. (2020). Analyzing competitive firms in an oligopoly market structure using game theory. In 2020 Industrial & Systems Engineering Conference (ISEC) (pp. 1-5). IEEE. Web.
Hussain, J., Pan, Y., Ali, G., & Xiaofang, Y. (2020). Pricing behavior of monopoly market with the implementation of green technology decision under emission reduction subsidy policy. Science of the Total Environment, 709, 136110. Web.
Kyle, A. S. (2019). Market structure, information, futures markets, and price formation. In International Agricultural Trade (pp. 45-64). CRC Press. Web.
Thisse, J. F., & Ushchev, P. (2018). Monopolistic competition without apology. In Handbook of Game Theory and Industrial Organization, Volume I. Edward Elgar Publishing. Web.