Monopolistic Competitive Market - Essay Example

Monopoly market and Monopolistic Competitive market and number: submitted: The economics topic centers on the relationship of human activities and wealth. The research scrutinizes the monopoly market. 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. Each potato chip market type has its own benefits and peculiarities. Monopoly A monopoly, including the Wonks monopoly, occurs if there are no competitors. There is only one seller of a certain product type or brand in the community. Likewise, monopoly occurs when there is only one product that serves a specific need or want. Monopoly crops up when new entrants are prohibited or cannot topple the obstacles to entering a market occupied by only one seller. For example, the school allows only the school’s own bookstore to sell the students’ required textbooks. The community’s only electric power company is a monopoly. States normally admit only one tap water entity to supply the community’s water needs (King, 2011, p. 355). Under a monopoly, there are significant hindrances to entrants to the monopoly market, especially with the potato chip industry monopoly. For example, legal barriers prevent competitors from entering the monopoly market. For example, the government only allows one company the license to operate within the community, city, or state. Some states offer a monopoly license to one company to serve the water, sewer, natural gas, and electric power needs of the constituents. In other states, the government operates monopoly liquor stores and lotteries. Likewise, the United States Postal Services has a monopoly license to deliver first class mail. The Federal Communications Commission (FCC) restricts licenses to commercially operate radio stations and television stations. The state is the only authority (monopoly to grant professional licenses) granting licenses to medical doctors, lawyers, accountants, nurses, and other professionals (Tucker, 2010, p. 242). The stakeholders will benefit from the monopoly. The government can ensure more accurate collection of taxes. The government has to monitor only one company supplying the water, electricity, gas, mail, and other needs of the community. The government’s tax collection efforts will be easier. The businesses have to transact with only one company in a specific market segments. The business entity has to only contact one water supply company, one mail delivery agency, or one electricity provider, for their water, mail, and electricity needs. The consumers can easily locate the only entity responsible for the supply of water, electricity, and mail services. The stakeholders will have lesser time and difficulty finding and transacting with the monopoly company serving the needs and wants of the community. Pricing under the monopoly differs from the monopolized competitive market. The monopoly company can raise its selling prices without losing its current customer base. The customers have no other alternative but to pay the higher prices. The government can step in and set limits to the monopoly company’s price increases. The government can interfere when the monopoly company’s price increases borders on abuse of the customers. Government interference is required when the price increase does not equate to the improvement of the company’s current unfavorable service (Dudey, 1996). In terms of production, the monopoly enjoys exclusive rights to sell its products and services to the current and prospective customers. Microsoft is the exclusive seller of Microsoft computer software products (Gisser, 2001, p. 211). Microsoft is the sole seller of Windows XP, Windows Vista, and Windows NT software. The company’s monopoly of the Microsoft office software forces all computer users to buy the original software from Microsoft Company. The monopoly must produce more than enough goods to serve the political needs of the constituents within the community. If the monopoly company fails to deliver the products on time, the government may cancel the monopoly company’s license to operate on monopoly status. Consequently, the government can locate and enter into a contractual relationship with other providers that will resolve everyday bothersome issues or facts. Monopolistic Competition William Baumol (2011, p. 209) emphasized a monopolistic competitive market is described as the prevalence of many small entities or companies offering products of somewhat different types. For example, the grocery store shelf displays may food brands. The same grocery store, including 7-11 stores, offers different snack food choices. The grocery store’s snack food choices are supplied by different competing grocery store suppliers. The grocery displays different sizes, colors, shapes, tastes, and textures of one grocery type. The customers can pick one of the bread brands displayed on the grocery stores. In terms of services, some monopolistic competitive store can offer different types of services. The McDonalds restaurant chain can offer free delivery to clients living in the community. The Kentucky Fried Chicken restaurant chain can offer toys, such as the movie heroes, as gifts to clients who buy a minimum amount of food purchases. Any time of the day or night, the 7-11 stores can offer 24 hour store service to serve the community’s residents. Under the present economic setup, one small entities’ effect on the total economy is not significant. Consequently, the competitors do not notice or pay a major attention to the economic activities of one small competitor (Ottaviano, 2011, p. 938). Further, one of the popular types of monopolistic competition market is the retail industry. There are many small shoe stores in one city. There are many small restaurants in Los Angeles City. There are many gasoline stations on the way towards John F. Kennedy Airport. The monopolistic competition is characterized by the abundance of competitors in one market segment (Baumol, 2011, p. 209). As the community’s population increases, there is a normal increase in the number of monopolistic competitive stores filling the demands of the current and prospective customers (Pecorino, 2009, p. 398). Furthermore, William McEachem (2011, p. 227) insists that many suppliers offer slightly different products in the monopolistic competitive market. Many customers prefer to buy their personal products such as groceries from the nearest grocery store. Consequently, the grocery stores serve the needs of the community or district. A San Diego resident would buy one’s grocery needs from a New York grocery store, but from a San Diego grocery store. Under the monopolistic competition, there are many competitors. There is no hindrance to new competitors entering the same market segment. The current competitors have no difficulty shutting down their retail operations. The customers can choose from a huge number of competitors. Normally, the market is saturated or near saturation point. In terms of selling prices, one monopolistic competition store can raise or lower its prices independently. The store does not consider the prices of the competitors as a significant influence on the prices of one monopolistic competition competitor. For example, the customer would prioritize the time saved buying one’s grocery needs from the nearest competitor. The customer realizes that the slightly lower prices offered by a competitor in another city would not equate to the time saved buying from the grocery store located within the same block as the customer’s residence. The customers will pay more if they visiting the grocery store located in the next city. The customers will have to pay for the gasoline needed to drive one’s car to the next city. Implementing this purchase alternative, the customer would waste several hours passing through the heavy traffic to reach the next city’s grocery store. On the other hand, the customer can simply stride to the neighborhood grocery located within the customer’s community block. In terms of production, the monopoly must produce the products and services of the entire community. On the other hand, the monopoly company needs large financial asset amounts to generate all the electricity, water, gas, and mail services or products. The monopoly company is assured that there is a ready and willing buyer of the monopoly company’s products and services. If the monopoly company fails to deliver the goods and services on time, the government may revoke the monopoly company’s license to operate without a competitor in sight. Further, the monopolistic competitive company has many competitors. One company cannot significantly affect the market segment when raise their selling and other relevant food prices significantly. Consequently, some of the current and prospective customers will transfer to other competitors. The transfer is based on the economic theory of demand. The demand theory states that the current and prospective customers’ demand for the products will decrease if the prices of the goods and services increase. Likewise, the economic theory of supply states that the suppliers will increase the production of their goods or services if the current and prospective customers’ demand for the suppliers’ products and services increase. Resolving the two economic theories of demand, the equilibrium price represents the meeting price of the two parties. The meeting price is the adjusted price agreed by both the buyers and the sellers. If all other factors are equal, many of the current and prospective customers will definitely shift their store visits to other stores selling the similar product at lower cost. However, if distance plays a major factor in the decision, some of the customers may prefer to remain loyal to the current store or grocery. Analyzing the above discussion, the Wonks should operate in a monopoly market. If the Wonks Company can set up a branch in the major cities, counties, and communities, the monopoly market is favorable. As a monopoly, the Wonks will not have any competitor encroaching into the Wonks market segment. Normally, the customers will not care whether the company is a monopoly market or a monopolistic competitive market. The customer’s main concern is the availability of the Wonk products and service. However, if the Wonks Company has only enough funds to set up one store in Rodeo Drive, California, then the customers would prefer to have the monopolistic competitive market. The monopolistic competitive market allows the current and prospective customers the right to purchase their product needs and service needs from the nearest suppliers or manufacturers. According to the above scrutiny, economics probes the effect of human activities on wealth generation. The monopoly market benefits governments, companies, and customers. One of the major benefits of the monopoly market is the government’s easy collection of taxes. One of the major benefits of the monopolistic competitive market is the time saved visiting the nearest store. A New York resident can buy a McDonald’s hamburger from the nearest McDonald’s New York City Branch. In the same manner, a Nevada resident can buy grocery products from the nearest Nevada 7-11 store; the Nevada resident does not have to buy the grocery products from a Colorado 7-11 store. The monopolistic competitive market includes several stores selling different products. Evidently, each potato chip market type has its own advantages and market intricacies. References Baumol, W. (2011). Economics: Principles and Policy. New York: Cengage Learning Press. Dudey, M. (1996). Dynamic Monopoly with Nondurable Goods. Journal of Economic Theory, 70 (2), 470-488. Gisser, M. (2001). One Monopoly is Better Than Two: Antitrust Policy and Microsoft. Review of Industrial Organization , 19 (2), 221-225. King, S. (2011). Principles of Economics. New York: Cengage Learning Press. McEachern, W. (2011). Economics: A Contemporary Introduction. New York: Cengage Learning Press. Ottaviano, G. (2011). Monopolistic Competition, Multiproduct Firms and Product Diversity. The Manchester School , 79 (5), 938-951. Pecorino, P. (2009). Monopolistic Competition, Growth, and Public Good Provision. The Economic Journal , 119 (534), 298-307. Tucker, I. (2010). Economics for Today. New York: Cengage Learning Press. Read More