Four types of markets: Monopoly, Oligopoly, Monopolistic competition and Perfectly Competitive market - Essay Example

Monopoly Neutron is a computer that enjoys a monopoly market during the first three years due to the patent. A Monopoly market is when there is only one producer in the market with no close substitution or other competitor in the market. The company can set the market price and enjoys 100% market share. The ideal price for a monopoly is to set it at where marginal cost (MC) equals to marginal revenue (MR), find out the quantity marketable at this point and set the price accordingly. MC=MR When the company decides to spend on advertising, the MC of the computer would increase.

At the same time due to the impact of advertising the number of units sold would increase, and would increase the MR along with it. Since the product is still selling at a monopoly market the ideal price and number of units to be sold would be at MC=MR. However, since the company hasn't priced the computer to reach the optimal profit, it means that either, MC < MR (scenario 1) Or MC > MR (Scenario 2) If the case is as scenario 1 then the strategy would be to increase MC in order for MC to equal MR.

By investing more on improved manufacturing, the MC can increase considerably. However one should also remember that MC should not be exceeding the MR, or else again there would be scenario where the company would not make the optimum profit. Oligopoly In three years time the patent on the "Neutron" expires and another competitor enters the market making the market an Oligopoly. In an oligopoly situation the ideal economic profit can be made mostly by considering what the competitor does. The competition would be mostly based on non-pricing strategies than pricing strategies.

However, according to the simulations, it seems like the competitor is making a loss even though it has captured 50% of the market share. In an oligopoly if one company reduces the price, then the other competitors are also forced to reduce the price to maintain the market demand. As Quaser Computers is making a profit selling its product at $ 1750 and Orion Technologies is making a loss selling its product at the same price and still having 50% of the market the best is for Quaser Computers to decrease its selling price.

This will capture more of the market as well as force its competitor to decrease its price and as ac consequence to run its business in a loss. It can even force the competitor to shut down and leave the market. If the price cut is going to create a market slump then the best would be to move on to a non pricing strategy such as improvising on technology. Monopolistic Competition 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.

Therefore, firms should now focus on differentiating their products from their competitors. Some strategies would be advertising, branding and promotions (gifts with purchases, extended duration of warranty etc.). The company can also improvise on its technology and differentiate the product suitable for corporate and home uses. Perfect Competition When the product enters a perfect competitive market then no firm can control the price or market. There would be perfect information available to customers and no single firm can control the market or the market share.

In order for firms to maintain the market share and revenues, they should create barriers to entry. Barriers to entry are important as no other firm can enter the market and capture the market share or force prices to go down. At a perfectly competitive market a firm would face a situation where price (P) would equal to MC and MR and average Revenue (AR). P=MC=MR=AR In a perfect competitive market firms will only enjoy an Economic profit of zero and has to wait for another firm to exit to capture more market share.

In this case study we see that Quasar Computers face all four types of markets, Monopoly, Oligopoly, Monopolistic competition and Perfectly Competitive market for its product Neutron. During the Monopoly stage pricing strategy is more important. The firm should set the price at the quantity where marginal cost is equal to marginal revenue. During the oligopoly stage the firm should set a competitive price as well as focus on differentiation. In the monopolistic competitive stage the strategy should be mostly on to non-pricing as it will be difficult to control the price at this stage.

The firm should focus more on advertising, branding and sale promotions. In the perfect competition market stage it is difficult for firms to control price or market share. The firm should accept the market set price and wait for a competitor to leave the market in order to increase the market share and sales. Resource: www.economist.com