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Monopolistic Competition and Oligopoly Markets

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Research Paper: Monopolistic Competition and Oligopoly Markets

Introduction

 

 

The marketplace where many firms offer their consumers differentiated goods and services but the products do not have any perfect close substitutes is considered as the monopolistic market(Nikaido, 2015). In this market the capabilities of free entry and exit for all the firms are very low. The production decisions of any one firm do not affect the competitors of that firm directly and this is why all the firms possess relatively low degree of the market power in the marketplace. All of the firms exist in this market are price makers and in the long run demand for the goods and services of the firms get relatively elastic. This implies the fact that demand of the products is very sensitive with respect to the change in prices. In the short run, the objective of all the firms is to make positive economic profit but in the long run it reaches to zero. On the other hand, oligopoly is that marketplace in which a small number of firms capture the large majority of the total market share(Tyers, 2015). In oligopoly market, two or more firms have get the right to dominate the whole market and production as well as price decisions of any one firm directly affects the decisions of other firms.

In the given project, the various aspects of monopolistic competition and oligopoly markets will be discussed. The discussion will be on how the two market structure is different from each other and the way of capturing market power for both the market structures in the Australian economy. In Australia, both of these markets exist and they operate their activities differently. These two markets compete with each other with respect to pricing decisions and hence the production decisions are made through the analysis of market demand and market supply. Here the ultimate issue is related to the dynamic process of the structural changes occurring in the Australian economy facing by the business people of Australia.

Article: Monopolistic Competition and Oligopoly

According to the author of this article, both the monopolistic competition and oligopoly exist in the economy of Australia as the traditional classifications of the market structures. These are the static processes of the economy that is responsible for all the economic activities .These market structures are most significant for describing the business behaviour of the businessmen under the set of static assumptions for the economy of Australia.

The theories related to the pricing decisions with respect to the spectrum of market conditions according to the author is the range exist from perfect competition to monopoly and other imperfect market structures. In Australian economy, the imperfect market structure is nearer to the perfect competition for the goods and services in the service sector and labour market as well and the oligopoly is more rapidly taking the place of pure monopoly. The basic difference between these market forms is the size of the firms that directly affects the pricing decisions of them. In the Australian retail industry, in which the market is divided into several small segments, monopolistic competition is found. The segments of the market do not suffer from the diseconomies of scale as they operate in the monopolistic competition. But in contrast to this, in the manufacturing and insurance as well as in the banking sector, oligopoly is more apt and the economies of scale in this case require the market to supply by only a few numbers of large firms.

 

For the retail industry of Australia, thousands of different companies with different brands exist. Each of them is defined independently by their quality of the products and the raw materials used by the firms. There are around 14,000 retail firms exist in the retail industry and among them Telstra, Coles are most substantial retail firms in Australia and they share a significant amount of total market share in the Australian retail industry(Forsyth, 2018). The prices here are determined by the willingness of the consumers that depends upon the choice and preferences for the particular products. As the number of firms are quite limited and the brand name matters for the consumers, so any high price for the products would change the preference for that products from buyers. The retail sector accounts for 4.1% GDP and 10.7% employment for the overall Australian economy.

The diagram given above shows the market shares of the companies in the retail industry of Australia. Here Telstra has become the leading retail firm in the industry as it captures 46.3% of the total market share. This situation leads the retail industry towards the monopolistic competition and most of the market power has gone to the Telstra. This also implies the fact that prices of the products provided by this company can easily attract the consumers. High price would lower the demand for the goods and services. 

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