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Two different Market - Term Paper Example

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Perfect Competition Versus Monopoly Name University Perfect Competition Versus Monopoly Both perfect competition (PC) and monopoly are two extremes of market structures, where PC is a market structure in which there is an ample amount of competition among sellers and which is well known for achieving the objective of efficiency and where no single firm controls the market…
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Download file to see previous pages There are a number of differences in the characteristics of both market structures; the main differences are experienced in the number of sellers, product nature as well as the barriers of entrance and exit in the market. A market that is structured on the basis of perfect competition comprises several buyers and sellers, and the prices in the market are decided by the forces of demand. This means that no one controls the prices and sellers are simply price takers. In case of monopoly, there is only one single seller and the prices of goods and services are decided by the organization (Arnold, 2010, p. 494). Karachi Electronic Supply Corporation is an example of monopoly as it is the only electricity supplier in the region of Karachi. Another distinguishing characteristic of both monopoly and PC is the barrier to entry and exit. In case of PC, there are no barriers to entry or exit: anyone can enter a particular industry and can produce any particular good or service. In PC, entrance of a firm in a particular industry is dependent on demand for particular goods and services. Goods and services that are demanded more are produced more. In case of monopoly, the single firm in the market or industry is the leader, and it is very difficult for other firms to enter the market. This is because monopolies are price makers and they can reduce their prices to block other firms from entering. Secondly, firms in monopolistic markets hold some kind of competitive advantage such as technological advantage, and other firms may not be able to access those technological advancements and may fail to compete. In case of perfect competition, the goods and services sold are homogenous in nature. This means that all the firms produce a similar kind of goods and services and close substitutes of goods and services are available, which provides consumers with the benefit from choosing between several sellers of different products. In case of monopoly, there is only one seller of a product and there is lack of homogeneity. This means that the goods and services produced by a firm in monopoly cannot be produced by others, so consumers have little to choose from and have to accept the product at a particular price set by the seller. In the short run of a perfectly competitive market, the first to enter as a seller in the market enjoys more benefits as compared to those who enter later, and thus those who enter first can set higher prices and enjoy a higher amount of benefits. In the long run, an organization faces a lot of competition since there is no barrier to entry. Due to this, the profits for all the competitors decline, and those who entered first have to adjust their prices according to competitors, and their profits even decrease. As the profits continue to decline, competitors start leaving the market and look for new opportunities. In the case of monopoly, the firm may experience zero competition, but in the long run it might face the threat of new entrants and, at that time, the firm may need to decrease its prices to block new entrants, and thus their profits may decline. Similarly in the long run, a new entrant can come up with a technological innovation and can reduce the production cost. This can give an ample amount of competition ...Download file to see next pagesRead More
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