Market Realities and the Maximalization of Consumer Good - Essay Example

Section/# Market Realities and the Maximalization of Consumer Good For purposes of definition, a monopolistic competition will be defined as a type of competition that is defined by the fact that only one business or individual can provide the needs of the larger economy. Conversely, oligopolistic competition will be one in which only a few very large companies offer the given good or service to the market. Likewise, due to the fact that so few players exist within the oligarchic model of competition, it is easy and often common for them to cooperate in order to stifle any entrants to the market. As a function of seeking o understand each of these models to a greater degree, the forthcoming analysis will seek to provide the levels of differences that exist between the two as well as showing some figures that illustrate the ways in which the market behaves under these different models of competition. Lastly, a value judgment will be made with respect to which of these is the best model of competition to maximize consumer good within the economy. Although it is useful to seek to provide a contrast between the two so that the reader and/or researcher can best judge how these two forms of competition act within the given economic system, there are a level of similarities between the two that cannot be ignored. In both of these models, the consumer is at a price disadvantage due to the fact that the price maker(s) is holding almost all of the power and has the ability to set the price according to non-market regulated means (Lu, 2011). Likewise, also from the consumer’s perspective, the level of selection of goods or services between both models is similarly constrained. Due to the fact that one or a handful of firms are holding the means of production and/or distribution firmly within their grasp, the availability of substitutes is greatly diminished (Marini & Zevi, 2011). Conversely, the differences that exist between the two market realities also help to differentiate the two models. The first of these revolves around the fact that a monopoly allows for much lower level of consumer choice than does the oligarchic system. Although both systems necessarily constrain the choice to the consumer, it is impossible to consider a situation in a monopolistic model in which a price war would take place (ZHELOBODKO et al, 2012). Conversely, although rare, price wars can and do take place within the oligarchic model due to the fact that a particular firm or group of firms may seek to leverage an advantage and further reduce the competition by driving one of the participants out. Figure 1 and 2 below seek to point out the key means by which monopolistic and oligarchic competition affects the supply and demand curves of the traditional representation of the economy. Due to the ways in which these are warped from the standard representations, the reader can gain a degree of inference with respect to how these effects will be passed along to the end consumer within the markets. Figure 1.0 Oligarchic Competition Figure 2.0 Monopolistic Competition Consequently, the reader and/or researcher can understand that with regards to the maximizing the good of the consumer, the oligarchic model is most appropriate due to the fact that although it provides the consumer with only a few options between firms or between products, it necessarily exhibits a greater level of offerings than does that of monopolistic competition. Moreover, due to the fact that the firms within an oligarchic system compete, at least to a small degree, some utility is able to maximized on behalf of the consumer (Essen & Hankins, 2013). This is a function of the fact that the monopolistic system is the price maker and the consumer is the price taker. Although one can argue that in the oligarchic system the same is true, the fact of the matter is that it is reduced due to the reality of the small level of continuing and ongoing competition that is present. Though few realistic examples exist within the world with regards to a monopolistic system, one can easily remember the situation in which Microsoft dominated the market for computer operating systems during the late 1990s and early 2000s (OTTAVIANO & THISSE 2011). Prior to Macintosh and others providing an alternative, Microsoft was able to operate as it pleased, charge as it pleased, and seek to shut out all other firms from competing within the market. Similarly, consumer choice was all but non-existent due to the fact that the only product capable of meeting the needs of the consumer at that time was Microsoft’s. Conversely, the situation that is exhibited within the oligarchic model can be understood by analyzing the so called “cola wars” which have been fought between Coca Cola and Pepsi Cola. It is undeniable that these two giants do not represent an oligarchic model of control on the markets; as such, they compete within many of the same markets and respond to the price incentives and marketing as well as growth and development that the other firm exhibits (Chang, 2012). Though a better model of competition could definitely exist for the end consumer, the fact that both Coke and Pepsi exist and compete within the same markets makes the situation for the consumer far better than it would be if only Coke or Pepsi existed and could behave in whatever way that they saw fit; thereby diminishing the choice and utility that would ultimately be provided to the end consumer. In conclusion it should be noted that apart from their nuanced differences, both of these forms of competition exhibit a supreme levelof disadvantages with relation to the consumers that are left to buy their products or services. Due to the fact that little choice exists within both models, price setting necessarily occurs to a greater or lesser extent depending on the particular situation engaged with. Additionally, obth of these forms of competition deviate from the ideal form of capitalism due to the fact that the consumer is not longer in charge of maximizing his/her utility within the given context. References Chang, WW 2012, 'MONOPOLISTIC COMPETITION AND PRODUCT DIVERSITY: REVIEW AND EXTENSION', Journal Of Economic Surveys, 26, 5, pp. 879-910, Business Source Premier, EBSCOhost, viewed 14 March 2013. Essen, M, & Hankins, W 2013, 'Tacit Collusion in Price-Setting Oligopoly: A Puzzle Redux', Southern Economic Journal, 79, 3, pp. 703-726, Business Source Premier, EBSCOhost, viewed 14 March 2013. LU, Y 2011, 'THE RELATIVE-PROFIT-MAXIMIZATION OBJECTIVE OF PRIVATE FIRMS AND ENDOGENOUS TIMING IN A MIXED OLIGOPOLY', Singapore Economic Review, 56, 2, pp. 203-213, Business Source Premier, EBSCOhost, viewed 14 March 2013. Marini, M, & Zevi, A 2011, ''Just one of us': consumers playing oligopoly in mixed markets', Journal Of Economics, 104, 3, pp. 239-263, Business Source Premier, EBSCOhost, viewed 14 March 2013. OTTAVIANO, G, & THISSE, J 2011, 'MONOPOLISTIC COMPETITION, MULTIPRODUCT FIRMS AND PRODUCT DIVERSITY', Manchester School (14636786), 79, 5, pp. 938-951, Business Source Premier, EBSCOhost, viewed 14 March 2013. ZHELOBODKO, E, KOKOVIN, S, PARENTI, M, & THISSE, J 2012, 'MONOPOLISTIC COMPETITION: BEYOND THE CONSTANT ELASTICITY OF SUBSTITUTION', Econometrica, 80, 6, pp. 2765-2784, Business Source Premier, EBSCOhost, viewed 14 March 2013. Read More