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Monopolistic Vs Monopoly Essay

2218 words - 9 pages

IntroductionIn this assignment, we will be discussing about market structure, profit-maximising output and price and also the efficiency of the markets in terms of price and output. As we all know, there are many types of market structure. There is monopoly, monopolistic, oligopoly, perfect competition, etc. But this assignment is not going to be discussing all of them, we will only discussed two of them and make a comparison.As we have seen types of market structure, let's see what the definition of market structure is. According to Layton, et al (2002, p.173) market structure is a classification system for the key characteristics of a market, including the number of firms, the similarity of the products they sell, and the ease of the entry into and exit from the market.The purpose of this report is to see which market is a better market in the world of business, obviously there is no best market structure, because every market must have their advantages as well as disadvantages. And we will be looking at their strength and weaknesses and also to help us gain some inside knowledge on the market of economics.MonopolisticEconomists define monopolistic competition as a market structure characterised by many small number of sellers and buyers, differentiated products and free market entry and exit (Layton, et al, 2002, p.234).To say that products are differentiated is to say that the products may be (more or less) good substitutes, but they are not perfect substitutes. For an example of a monopolistically competitive "industry", we may think of the food & beverages industry (restaurant). There are many restaurants Perth, but the products and services of each restaurants are not perfect substitutes; their location. A restaurant in Perth is not a perfect substitute compare to restaurant in the suburbs. Restaurants' services may be differentiated in other ways as well, example their skills, the décor of the restaurant and even the quality of the food.Number of sellers and buyersBecause there are many restaurants on the market, therefore, one restaurant can't influence other restaurants. One restaurant can set their prices slightly higher than others but it can't make other restaurants to follow. This is also due to the differentiated products. Each firm produces a small share of total output.Product differentiationThis illustrates another point. Product differentiation is product that have been differentiated from each other and can in most cases be clearly identified with a particular firm (Fraser, et al, 2005, p.87).There maybe thousands of restaurants in a city but they are not all the same. As we have discussed before, a restaurant in Perth offers the same food as in Sydney. But because they make their product different from others & good reputation, they can make their price higher without worrying of losing a customer.Monopolistic competition is not only depends on product differentiation but also on non-price competition,...

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