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An Explanation Of Monopoly, Oligopoly, Perfect Competition, And Monopolistic Competition A Detailed Overview

968 words - 4 pages

The Australian market is a diverse economic ocean - it has different species of marine life (industries), different swells (market structure) and even 'hot' and 'cold' spots (public companies). One of the key determinates to a successful national economy is the structure of its markets. The main market structures are: 1. Monopoly2. Oligopoly3. Perfect Competition4. Monopolistic CompetitionEach of these market structures have unique characteristics, and can be classified according to three factors. The degree of competition, the first factor, is important as it classifies markets into different market structures. It compares the relative sizes of firms, the amount of sellers (vendors) and the barriers of entry to the market. The second factor is pricing strategies. The 'big fish' have high power to set a price, because of their size and influence over the market. On the other hand, a smaller, less powerful business will usually have extremely little or no power to set the price. The final factor to be taken into account when classifying a market structure is the profit of a firm, and their performance compared to others (if applicable).Every market is classifiable into one of the four market structures: monopoly, oligopoly, perfect competition, and monopolistic competition.Monopoly:A monopoly is a situation where one firm completely dominates the market. This is exactly the opposite of perfect competition (explained later), and it means that one firm has 100% market share. There can be several circumstances that result in a monopoly.If only one firm selling a unique product that they have various patents or copyright on, then the company has a monopoly on the market. A monopoly also results when no substitute product is being sold, leaving the consumer able to purchase only the monopolized product. This means that the market has extremely high barriers to the entry of another firm. Monopolies are commonly referred to as 'price setters, which means that because of their position in the market, they can set virtually any price for a good or service, and still have high demand for it, simply because no-one else is selling it. In Australia today, however, there are very few monopolies, but they still exist.A prime example would be the water company.In order for a healthy marketplace and therefore economy, the government places restrictions on monopolies. The main reason for this is the fact that monopolistic firms have absolute power over the pricing of their products. Without government intervention, monopolies could charge any price for their products and consumers would be forced to purchase the product due to the lack of competition. A perfect example of a government restriction on monopolistic behaviour is to place a price ceiling on a product. This means that if the company sells its product for an amount greater than the quoted price ceiling, the firm is breaking the law.Oligopoly:An oligopoly is a prime example of imperfect competition. They...

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