Economic for Business: Monopoly and Oligopoly - Essay Example

Economic for Business: Monopoly and Oligopoly This study will explore the issues in economics and will focus on the article of Sloman and Sutcliffe entitled Economic for Business. The article explores two main issues in economy particularly in political economy and these are monopoly and oligopoly. According to the study Monopoly is a market situation characterized by: 1. the presence of a single seller of a certain type of product or service; 2. lack of viable substitutes because the product or service is in a sense unique so that it transcends brand identity and not easily replaceable; 3. assignment of price control to the single seller by increasing or decreasing the quantity supplied; and 4. the existence of blocked entry resulting to lack of competitors because of market barriers (Sloman and Sutcliffe, 2001). Relative to monopoly, an oligopoly is a market situation that exists when: 1. there are a limited number of sellers; 2. the relationship between the limited sellers are interactive because the decision of one affects the others; and 3. the sellers may control price and market entry through collusion or they may engage in price wars (Sloman and Sutcliffe, 2001)). UK supermarket industry where Tesco, Sainsbury, Morrisons and Asda comprise a firm-concentration ratio of 70 percent and the UK brewery industries with a firm-concentration ratio of 85 percent are examples of Oligopoly. Compared to monopoly and oligopoly, a cartel is comprised of legally independent sellers and producers grouped together to control price, limit supply and limit competition. If a centralized institution is created to coordinate the actions of several independent local or regional monopolies then the arrangement creates a cartel. If there is a formal agreement to collude in order to fix price by oligopolies then this creates a cartel. (Sloman and Sutcliffe, 2001) De Beers diamond, 1999 Vitamin cartel, MLS service, and OPEC are some of the known cartels. Monopolies are expected to sell their goods at a higher price due to lack of competition. This may discourage some consumers to buy but majority are willing to pay for the unique good or service provided the price remains more or less stable such as in public utilities providing necessities to the market. In the case of public utilities, monopoly is ideally a preferred market situation so that price is controlled and supply is accessible to majority of consumers. Oligopolies benefit consumers in cases of price wars because the consumer is able to purchase goods and services at low prices (Sloman and Sutcliffe, 2001). It is traditional to divide industries into categories according to the degree of competition that exists between the firms within the industry. There are four such categories. At one extreme is perfect competition, where there are very many firms competing. Each firm is considered as so small relative to the whole industry that it has no power to influence the prices of certain products or services. At the other extreme is monopoly, where there is just one firm operating in the industry, and hence no competition from within the industry exists. In the middle emerges monopolistic competition, wherein there are quite a lot of firms competing and where there is freedom for new firms to enter the industry and oligopoly, where there are only few firms and where entry of new firms is restricted. The market structure under which a firm operates will determine its behavior. Firms under perfect competition behave quite differently from firms that are monopolistic, which behave differently again from firms under oligopoly or monopolistic competition. In a more developed countries oligopolies are common in many sectors of their economy such as automotives, steel production and common goods. In terms of competition, oligopolistic competition paves way to a broad level of different outcomes. In some instances, firms may collude or plan to increase the price and limit their production just like in monopoly. Herein, members of an oligopoly must have a formal agreement to initiate such collusion which is known as cartel. However, this collusion has legal restrictions in many regions. Herein, the collusion may not have a formal agreement, for instance, in some oligopoly; members had been able to acknowledge a market leader. This market leader is the one responsible for setting prices in which other members respond. On the other hand, there is also a situation wherein the competition between the members of an oligopoly can be ardent, providing relatively low prices with high production rate. This situation can lead to a more efficient outcome which will likely result to a perfect competition. Conversely, oligopoly may lead to the under- utilization of duplicated facilities. Some of these ostensible duplications may confer genuine advantages on customers; others may be largely redundant. Genuine redundancy is likely to be less important in the provision of trading services in which fixed capital plays a relatively minor part. However, even if average costs are greater under oligopoly than under monopoly, the price of the commodity or service is likely to be more favorable to customers in conditions of oligopoly (Sloman and Slutcliffe, 2001). In general, oligopoly is an attenuated form of monopoly; compared with the latter it results in reduced dependence on individual firms, less complete control of the market by any one firm, and more favorable prices to buyers and sellers. On the other hand, prices may be subject to more rapid and erratic changes under oligopoly. References Sloman, J. and Sutcliffe, M/ (2001) Economic for Business. England; Pearson Education . Economic Development in Singapore Introduction The housing sector is an important aspect in Singaporean economy. Not only does the related government organization take a dynamic position towards housing developments, but the citizens are also participating actively by supporting policies and less expensive housing establishments. Over the years, world nations, particularly those in Asia, have gone through several economic ordeals and challenges, causing moderate to severe outcomes. A number of aspects like trade, tourism, business and housing have been affected by the economic turmoil in the region. As the housing sector is significant for Singapore's growth and development, it is then essential to identify the specific impact of economic and market trends towards this factor. Such identification is significant so as to develop actions that will counter the negative impacts of various economic changes in the country. In this literature review, recent reports will be used to describe the current economic status of Singapore. In line with the housing sector, the present developments, challenges and effects of economic trends to this aspect will be discussed. Moreover, the reaction of Singaporean tenants towards housing developments in terms of demand and purchasing behaviour will also be taken into account. The Economy Based on Singapore's economic survey in 2007 for the third quarter, the economy of the country went down to 7.5 percent during the year's third quarter as compared to the economic growth of 12 percent of the previous quarter. The momentum of the growth was reduced by 3 percent, while the second quarter of the year marked a strong expansion of 11.9 percent. There is an observed positive growth among major sectors during the third quarter of 2007. However, the growth has significantly slowed down and became moderate after the second quarter. There are a number of sources that brought about this economic outcome. The report (Economic Survey of Singapore, 2007) noted that the level of external demand has dropped to 21 percent during the third quarter of 2007, considering that the demand has grown to 26 percent on the second quarter. Exports of various goods including machinery, transport equipment and beverages have gone through significant reduction. The second quarter also marked slower growths for services on transportation and travel. Overall domestic demand has also dropped from 14 percent during the second quarter to 10 percent on the third quarter. This reduction was mainly due to the moderate private consumption and decline of public investment growth. While the total demand during the year continued to generate two-digit growth, there was an observed deterioration among the year's quarters. The third quarter for instance resulted to a 19 percent total demand growth, whereas an earlier quarter produced a total demand expansion of 23 percent. Hence, in general, economic growth has slowed down in terms of external and domestic demand (Economic Survey of Singapore, 2007). The consumption growth on the private sector has also been affected in 2007 as the third quarter marked a reduction from 11 percent to 6.8 percent. Specifically, consumers' total buying power has declined on the transport, communications and medical services aspect. Moreover, the report noted that the country's residents and their overseas spending behavior have undergone a considerable decline. This has been attributed to the effects of SARS and the still ongoing post-recovery of international travel from the health issue. The second quarter of the same year resulted to a 13 percent increase in the gross fixed capital formation, which in turn had reduced to 11 percent. Though the private sector has maintained its strength, the public sector on the other hand has declined and worsened further. This decline was primarily due to the reduction in spending of the consumers for transport equipment, machinery and construction (Economic Survey of Singapore, 2007). While the demand and purchasing behavior of the Singaporeans have suffered apparent reduction and moderate growth, particularly during its third quarter, other economic aspects have grown positively. During the third quarter, the job market has strengthened and was supported by the robust growth of the economy during the first quarter of 2007. The total employment in Singapore has increased by 16,600 and was considered as the most remarkable employment increases for the past three and a half years (Economic Survey of Singapore, 2007). Due to this progress and the creation of strong employment, the unemployment rates had naturally declined. In September 2007 for example, the unemployment rate dropped to 3.4 percent, which was then at the 4.5 percent level three months earlier. Moreover, the labor force within the resident sector has also dropped to 3.9 percent in September from a 5 percent level in June. Hence, in spite of the apparent crisis in the country's economy, the employment sector had constantly strived and progressed (Economic Survey of Singapore, 2007). Conclusion From this article review, it becomes clear how the economic influences and market trends can affect the housing sector. In particular, the increased sales of housing units result to increased general revenue and enhancement of housing developers' confidence towards the development of new housing establishments. On the other hand, the buying attitude, confidence of the home-buyers to the economy, access to alternatives as well as consumer preferences play a significant role in the growth and development of the housing sector in Singapore. The current market trends among Singaporeans have been shaped due to their experiences with various economic problems and uncertainties, thereby creating a more cautious and practical consumer. While this may have resulted to the increasing number of still vacant and unsold units, these evidences stress the significance of giving priority to what the consumers need and want. This in fact is a way how housing agencies like HDB can counter future changes in the economy and prevent further deterioration in the housing sector. References The Singapore Economy. (2007). Economic Survey of Singapore, Third Quarter. Available at:http://business-times.asia1.com.sg Read More