This paper talks about the advantages of perfect competition markets, in comparison with monopoly markets, in respect to public and societal welfare. This paper also suggests, that monopoly markets have a tendency to exhibit inefficiencies of different kinds…
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Moreover, their ability to exploit economies of scale also allows them to sell their products at very low prices which are often less than the cost price of other sellers, thus allowing the larger companies to easily drive them out of the business3. However, monopoly seller, as mentioned earlier, is highly likely not to satisfy the complete demand for its product so that it could charge a premium price. Therefore, the monopoly seller fails to take the full advantage of economies of scale, unlike many firms in monopolistic, perfectly competitive and oligopolistic markets4. Other than technical, allocative and productive inefficiencies, monopolies are also likely to be X-inefficient. American Economist Liebenstein argued that regardless of the level of production, monopolies are always X-inefficient because of the absence of competitive pressures5. Therefore, there costs of production are always higher than it would be within perfectly competitive on even monopolistic markets. The same is true because monopolies sellers are most likely to own technologies, assets, and machines that are not operating at their fullest or which are not needed. Furthermore, they are also likely to overpay people, thus leading to cost inefficiencies6. In presence of competition, firms spend great deal of time and energy over ensuring that they decrease their costs to utmost possible. Consider the example of the US airline industry where strong competitive pressures have forced companies to seek more cost effective pressure. Competition forced Southwest Airlines to create a new business model aimed at cost effectiveness where the company flies its aircrafts for more than 11 hours a day, uses same aircrafts for reducing maintenance and training costs, flies short haul, uses dynamic...
This paper is an attempt to explore the economic efficiency outcomes of monopoly markets with that of perfect competition markets. Furthermore, the paper would also attempt to present a possible government policy to improve efficiency within the markets. The focus of policymakers should be at creating policies and programs that facilitate competition within various markets, especially within monopolies markets.
However, policymakers should draw a line for their intervention. Even in the worst times, direct government intervention or control is not a viable long-term option for creating efficiency because not only it is inefficient but ineffective.
The only policy that governments should pursue is to ensure that monopolistic and oligopolistic markets could move towards a perfectly competitive market. Interestingly, in many cases, it is the existing government policy and structure, which creates the costs and hurdles for new entrants to enter into the market. Therefore, governments all over the world should try to follow the economic models of countries like Hong Kong, Singapore, Australia, New Zealand and Switzerland where the government intervention within the markets is minimal. Furthermore, the cost of starting up a business, running the business and winding up the business are also much lesser than the rest of the world.
The focus should be on reducing the excessive costs and time required to start, operate and wind up a business, opening up borders to other companies, facilitating free trade and research and development.
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It is these market structures which determine the behavior of the firm in that industry. Perfect competition is on one extreme of the spectrum. Although it may not exist in our world today it plays an important role as a model to study when analyzing levels of competition.
So the goal of the firm is profit maximisation. We shall study the two types of markets – perfect competition and monopoly, and discuss why in the long run the former earns normal profit but the later earns more than that. Perfect competition is a type of market which fulfils all these five assumptions.
One needs to find a trade off to maximize his utility. Besides that, there are several hindrances which force him to make rational decisions while apportioning resources effectively. This principle segregates market into two extreme continuums of market structure which are Monopoly and perfectly competition.
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.
Economic efficiency is a relative term; any economy will be more efficient once it manufactures more products and provides more services for society than another by using the same or lower input (Bresnahan 1982). There are two models for market structure namely Perfect Competition and Monopoly markets.
Which form of market is better can be subject matter of discussion and is controversial issue. Perfect market is the starting point around which other market forms should revolve or regulated. The case study of Microsoft Corporation with its monopolistic product in application software used in every computer is given below to highlight the model of Monopolistic from of market.
According to the paper, market structures are important in the sense that they affect the market outcomes, because they have great impact on the motivation and decisions. It is very critical for the business, that market structures are correctly identified and established to identify the correct resources which are to be directed towards them.
a group of players but there are certain areas where monopoly still exists and customers have to settle for it because they really do not have a choice.
The area in which I reside there is complete monopoly, although there are many cell phone towers but only one works in my
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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