What would happen in a market that is transformed from a perfectly competitve market to a pure monopoly - Essay Example

and Section # of What would happen in a market that is transformed from a perfectly competitive market to a pure monopoly? Monopoly and perfect competition are exact opposite of each other. They represent completely different market structures and effect their environment to a great extent. This paper will then shed light over the changes that a market would go through if it were transformed from a perfectly competitive market to a pure monopoly. A Perfectly Competitive Market As defined previously, in a perfectly competitive market, there are an infinite number of sellers selling the same product (Salsman).

This means that none of the sellers have power to dictate the prices for the good. If a seller were to raise the price of the good, the consumers would immediately switch to another seller. The only thing that affects the price of the product is the demand and supply of the product. In such a situation, the consumers benefit. They have a high variety of sellers to choose from who are constantly trying to find ways to minimize their prices so that the customers buy from them. In this struggle, the customer ends up finding the lowest price.

Also, in a perfectly competitive market, there is high potential for innovation. As the sellers and producers aim to minimize their costs in order to lower their prices, they invest money in research and development and, hence, the state experiences innovation and technological advancements. A perfectly competitive market, however, is not the best place for a seller. Due to fierce competition and lack of market power, sellers experience low margins of profits on the goods they sell (Case and Fair).

Moreover, producers must constantly be on their toes to monitor the performance of their competitors and must try and stay a step ahead of them. In perfect competition, producers and seller try and differentiate their offerings through advertisements and creating brands. Again, they must do this through incurring marketing expenditures which would further increase their costs and make the environment very risky for them. A Monopoly The dynamics of a monopolistic market are the opposite as compared to a perfectly competitive market.

If a perfectly competitive market were to transform into a pure monopoly, it would become a very stress free zone for the firm. In a pure monopoly, the firm would have complete control over the price of the product. Also, because there are no competitors, it does not need to worry about the customers switching to another seller. It is purely to the firm’s discretion what price it wants to set for the product. (Case and Fair) Needless to say, the customers have to suffer in such a setting. The long list of sellers that were there in a perfectly competitive market are now gone.

There is only one firm dictating the price and it would choose to set a price that maximizes its revenues, considering that there is some price elasticity present. Moreover, the monopolistic market will now be less innovative. The monopoly would only focus on its maximizing its profits and would not care about minimizing costs through technological advancements because it could easily increase its profits by increasing the price. Works CitedCase, Karl E. and Ray C. Fair. Principles of Economics.

Pearson Education, Inc., 2007.Salsman, Richard M. ""Pure and Perfect" Competition? By What Standard?" 12 February 2000. Capitalism Magazine. 4 March 2010 .