monopoly and competition
Competition is directly influenced by the means through which companies produce and
distribute their products. Different industries have different market structures—that is, different
market characteristics that determine the relations of sellers to one another, of sellers to buyers,
and so forth. Aspects of market structure that underlie the competitive landscape are: (1) the
degree of concentration of sellers in an industry, (2) the degree of product differentiation, and
(3) the ease or difficulty with which new sellers can enter the industry.
a. Level of product differentiation among sellers (similar or different)
b. invest fractions of income to be devoted to get market information, advertising and
promotion, product design, with the result that resources are in a sense “wasted” and
costs increased,
c. seller concentration
d. barrier to entry
e. need legal protection from destructive competition
f. Price and other market warfare
g. Competition is directly influenced by the means through which companies produce and
distribute their products
Concentration of sellers
a. Seller concentration (number of sellers)
b. Their comparative shares of industry sales.
c. Who is to determine the selling price
Perfect competition
Market conduct and performance in atomistic industries provide standards against which to
measure behaviour in other types of industry. The atomistic category includes both perfect
competition (also known as pure competition) and monopolistic competition. In perfect
competition,
1. a large number of small sellers supply a homogeneous product to a common
buying market.
2. In this situation no individual seller can perceptibly influence the market price at which
he sells but must accept a market price that is impersonally determined by the
total supply of the product offered by all sellers and the total demand for the product of
all buyers.
Monopolistic competition
In the more complex situation of monopolistic competition (atomistic structure with product
differentiation), market conduct and performance may be said to follow roughly the tendencies
attributed to perfect competition. The principal differences are the following. First,
a. individual sellers, because of the differentiation of their products, are able to raise or
lower their individual selling prices slightly; they cannot do so by very much, however,
because they remain strongly subject to the impersonal forces of the market operating
through the general level of prices.
b. Rivalry among sellers is likely to involve sales-promotion costs as well as the expense of
altering products to appeal to buyers. This is a competitive game that all will play but
that nobody, on average, will win, and the long-run equilibrium price will reflect the
added costs involved. In return, however, buyers will get more variety.
c. Sellers are unlikely to be equally successful in their sales-promotion and product
policies, some will receive profits in excess of a basic interest return on their investment;
such profits will come from their success in winning buyers.
Monopoly
1. As the sole supplier of a distinctive product, the monopolistic company can set any
selling price, provided it accepts the sales that correspond to that price.
2. Market demand is generally inversely related to price, and the monopolist presumably
will set a price that produces the greatest profits, given the relationship of production
costs to output. By restricting output, the firm can raise its selling price significantly—an
option not open to sellers in atomistic industries.
Oligopoly
Rivalry among sellers
a. In the simplest form of oligopolistic industry, sellers are few, and every seller supplies a
sufficiently large share of the market so that any feasible and modest change in his
policies will appreciably affect the market shares of all his rival sellers, inducing them to
react or respond,
b. Thus, in an oligopoly viable collusive agreements among rival sellers are quite possible.
They may be express agreements established by contract or tacit understandings that
develop as a pattern of reactions among sellers to changes in each other’s’ prices or
market policies becomes customary.
c. In numerous other Western countries, formal collusive agreements (often
called cartels if comprehensive in scope) are legal.