Perfect competition and monopoly power - Essay Example

There is natural tendency of the high technology company to acquire this form to shun competition. 3. In perfect competition products available in the market are of homogeneous character manufactured by firms and that do not provide customers the buying preference. Buyers are free to buy from the market and firms are also free to enter or exit without restrictions In contrast to this in monopoly there is only one seller and plenty of buyers. The entry barriers exist that don't allow easy entry in the market for many reasons such as high technology products or legally protected products etc.

Monopolists set market price of the product and services irrespective of the buyers' reaction. The buyers don't have power to influence price. Oligopoly is a situation that lies in between the two extreme models of perfect competition and monopoly. This is a market form in which the industry is dominated by a small numbers of sellers or firms and the decision of one firm influences that of others. This close proximity and influence of each firm on the other in the market or industry often causes collusion of interest.

There is scope of competition in oligopoly too but firms often employ restrictive trade practices as formation of cartels to raise product prices. OPEC is the best example which form cartel to restrict production of crude oil to reduce supply and increase price in the world market. When the number of firms is larger there can be fierce competition with relatively high production but low prices that amounts to situation in perfect competition. But actually the firms operate under imperfect competition.

In order to earn greater profit / revenue and market share firms in oligopoly utilize non-price competition and are supported by sticky -upward demand curve.Oligopsony is another form of market in which number of sellers is comparatively large than the number of buyers. This type of market is often seen in the input market where a small number of firms compete to obtain (buy) factors of production. This is just in contrast with the oligopoly market where firms compete to sell the final product.

Market with a few sellers (oligopoly) and a few buyers (oligopsony) is called as a bilateral oligopoly.Perfect Competition is the most competitive market structure in which everybody is a price taker. This type of situation hardly exists. It is so competitive that any individual buyer or seller has a very little impact on the market price. When a company emerges with a high technology products that no one else manufactures they acquire a growing monopolistic position in the market as the Microsoft Corporation did with its application software products that have to be used in every product as desktop computer.

Initially there was no substitute product in the market as in a monopoly market but gradually some firms dare enter in to the scene to snatch some market share of the near