Running Head: Monopolistic Competition versus Monopoly Monopolistic Competition versus Monopoly and number: Date Introduction Wonk, a company in the Northwest, has bought up constituents of the potato chip market and has conglomerated them into one unit…
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Monopolistic competition is comprised of a group of producers with identical products. The competition between the producers is not determined by the prices of the goods they supply but rather by how differentiated their products are (Salvatore, 2006, p.238). In this kind of competition the producers that are involved take the price that the rival producer is charging and use it on his own product not considering the consequences of the price. The scenario is different in a monopoly. Here, a single firm is the sole supplier of a given product as is the case when Wonks bought up the individual competitors and joined them to make up a single firm. The main characteristic of a monopoly is that the producer has a higher market share than that which is expected within a perfect competition. Another characteristic of the monopoly set up is the lack of substitute products in the market denying the consumers a choice. In this paper, we are going to analyze the consequences of a monopolistic competition being transformed into a monopoly. The hypothesis developed is; analyzing the effect that transforming a group of companies in a monopolistic competition into a monopoly will have on consumers, government and the company. Discussion In order to better understand the transformation, a closer look at the characteristics of both a monopolistic competition and a monopoly is required. In so doing, one can then draw parallels and differences that arise. In a monopolistically competitive market, a firm acts as a monopoly does in the short run, however in the long run, the market resembles a perfect competition since there is entry by more competitors and the gains accrued by having highly differentiated products diminish as does the possibility of the producers gaining economic profits. Consumers are very aware about the qualities of the products that the rivals offer since the differences are not evidenced by price. This model therefore is characterized by well informed customers and the producers rely on brand uniqueness to trigger a brand loyalty in consumers. In this model, there is no barrier to entry or exit. The model can thus be attractive to a large number of producers with identical products as there are no rules against entry. Likewise, there are no rules that may hinder a producer exiting the market when it is no longer attractive. Lastly, producers exercise a certain degree of control over the prices they charge. Although the control they have is limited, a producer can decide to price his products differently from the market price. The government can usually intervene in a monopoly in order to accomplish a determined goal or simply to cushion the consumers against extortion. Otherwise, when a monopoly is not coerced to perform in a certain way, the most typical goal is to maximize profits. The producer accomplishes this by producing few goods and charging them at a high price. The producer is thus a price maker in contrast to one in a monopolistic competition Monopolies often have barriers to entry where other sellers find it extremely hard to enter the market (Burkett, 2006, p. 155). This may be due to the structure adopted by the monopoly that discourages competition or may be sanctioned by the government. The major characteristic of a monopoly, however, is the fact that only a single producer is present in the given market. Here, it is assumed that
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(Monopolistic Competition Versus Monopoly Essay Example | Topics and Well Written Essays - 1500 Words)
“Monopolistic Competition Versus Monopoly Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/macro-microeconomics/1434604-monopoly.
Taylor (2007, p. 285) specified that monopolistic competition “occurs in an industry with many firms in free entry; where the product of each firm is slightly differentiated from the product of the other firms.” In the Mankiw (2007, p. 341) perspective, market structure can be classified based on whether one, few, or many firms are in the market; if the market has many firms, market structure can be further identified based on whether differentiated or identical products are sold in the market.
Rival firms in an oligopoly match each other’s price cuts but do not match each other’s price increases. Competition in an oligopoly primarily takes the form of advertising and product differentiation. There are a lot of barriers to entry in an oligopoly like economies of scale, product differentiation and brand loyalty, mergers and takeovers etc (Slomon 174).
The research delves into monopolistic competitive market. The mere mention of monopolistic competitive shows that there are many small competitors in the same market. The competitors sell different products that can fill the same need. For example, the grocery store sells different brands of cheese.
As monopoly proceeds, the consumers will ultimately forego the product, especially consumers who value the product or service more than they value its cost. This tends to create a deadweight loss. The deadweight loss also indicates that the combined surplus for the monopolists and the consumers is always lower than that for perfect competition.
This success caused the firm to find itself in a number of litigation cases, both at home (USA) and abroad. These mixed feelings about Microsoft emanate from the fact that the firm as a monopoly on end user computer software such as PC operating system (McKenzie, 1998).
In three years time the patent on the “Neutron” expires and another competitor enters the market making the market an Oligopoly. After a few years, since Quaser faces Monopolistic competition, it has to change its pricing and marketing strategies as there are more competitors and less possibilities of controlling the price
In such a case it might have been quite difficult for other firms to devise substitutes in any reasonable amount of time.
The new world of the web, of global capital, of footloose businesses and of rapid technical change is teeming with opportunity. It is also making the old political ideas look rather dated.
It means that an imperfect firm has a control over the market price. This control varies from industry to industry.
Monopoly is the extreme condition of imperfect competition. It is just the opposite of Perfect competition. In a Monopoly, there is a
Firstly, a perfect competition situation comprises of a large number of small firms that compete with each other and produce at minimal costs for every unit. Secondly, a monopoly does not have rivals in the industry. It minimizes output to
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