Market structure of a business organisation refers to the most effective as well as crucial aspects of business operations in the respective market. Monopolistic competition has been considered as an imperfect competition. Monopolistic market structure shows that various producers sell such products, which have been found to be different from each other. This differentiation can be based on quality, brand and so on in the monopoly market structure. Oligopoly market structure reflects the market structure where some businesses dominate. Oligopoly market structure can be seen only when the small numbers of suppliers control the crucial shares regarding the suppliers. In the context of oligopoly, every supplier has been taken into account for changes in the market activity. Housing affordability shows the relationship between household incomes and the housing (rents, prices, mortgages and so on). This study will explain the competition and comparison for oligopoly and monopolistic market structures. Apart from that, this study will also evaluate the housing affordability in Nepal.
Monopolistic market competition has the following key characteristics:
● Lack of Substitutes
In monopolistic market competition, there has been found no existence of substitutes. This represents that monopolistic market structure has lack of similar competitors. As per the statements of Cai & Lu (2015), his leads the business to arguably achieve a monopoly over total operating market.
● Price Maker
According to Baker et al. (2016), monopolistic market structure decides the product price, for having the total control over the market. It has been found to be easy for the business without any competitors in the market.
● Barriers to Entry
There have been found barriers to entering the market for competitors, which have been set by the monopolistic business (Schmidt, Spann & Zeithammer, 2014). However, if any competitor enters the respective market, the monopolistic market may lose the overall control of the market. This depicts that under monopolistic market structure, there have been found no difference between the industry and the firm.
As stated by Nikaido (2015), in monopolistic market structure, there have been found no competitor, close to the product of the respective industry.
A supernormal margin of profit can be easily maintained by a monopolist, in a long-run. However, this does not refer to necessarily making of profits. It can be found in loss or maximisation in the revenue of the business. This happens due to the imperfect competition of the market (Cascetta & Coppola, 2014).
● Economies of Scale
According to Sun et al. (2017), monopolistic market structure leads the business to achieve economies of scale as there has been found existence of only one seller in the respective market. This is because the big scale of production makes the production cost for the seller as low as possible.
(ii) Oligopoly Market Structure
Oligopoly market structure has been found with the following key characteristics
● Group Behaviours
As per the statements of Mulliner, Malys & Maliene (2016), the most relative aspect of oligopoly market structure has been found the behaviour of operating groups. There has been seen more than one firms in each group of a market, they bring the perfect competition for each of the firms.
Competition leads business organisations to act in such a way, so that can achieve the competitive edge in the respective market of operation (Hashmi & Biesebroeck, 2016). This also makes all the sellers be alert for winning over the rivals of the business.
In oligopoly market structure, it has been seen that existing firms of the operating market have to depend on another firm for making decisions (Saeedi et al. 2017). This can be found only in the oligopoly market structure. Interdependency for decision making provokes the organisation to take countermoves in the industry on the part of the competitor firms.
● Price Rigidity
In oligopoly market structure, every existing firm has to stand at the same price for a particular product. Rival firms can be seen highly reduce the price of respective products in retaliation if any industry reduces the product price. As per the statements of Adlakha, Johari & Weintraub (2015), this leads the industries to have a price war in the market, which is not beneficial for both the firms.
● Lack of Uniformity
There can be found lack of uniformity, in the oligopoly market structure in the size of the respective forms. These sizes of the firms can be considered on the basis of economy, scale, production and so on (Auer & Schoenle, 2016).
● Barriers to Entry
In oligopoly market structure, small numbers of large firms enjoy the economies of scale and have control over specific and essential inputs for the firms (Elfenbein, Fisman & McManus, 2015). Apart from these, in oligopoly market structure there can be found the high needs of cost for advertising, plants and so on, which restricts new industries to enter the respective market.
● Pricing Behaviours
Interdependence of the oligopolists creates rivalry, which eventually leads to conflicts. In this scenario, every industry target to achieve the maximum level of profit. As stated by Weller, C., Kleer & Piller (2015), at the end of those conflicts both the industries react to the price-output actions of each other. This literally leads to create monopoly in oligopoly market structure.
2. Provide diagrams and explain short run and long-run profits and losses in each market structure
(i) Monopoly diagram for short-run and long-run profit and loss
Respective diagram for monopolistic market structure has been considered same for long run as well as for short run (Wolf et al. 2016).
● The diagram of monopolistic market structure depicts the way of making supernormal profits when the price AR has been found to be greater than AC. The respective supernormal profits (Qm) can be mathematically expressed as follows:
Supernormal profits (Qm) = (AR-AC)
● Maximum profit for monopolistic market structure can occur only when MR=MC as per the respective diagram. Hence, the relative equilibrium can be seen at Qm and Pm at the point of M.
● Supernormal profits of the monopolists attract more new entrants; though there have been found barriers in the monopolistic market. As per the statement of Merhav (2017), this helps the monopolists to maintain the supernormal profits of the respective businesses.
● The monopolists have been found to be inefficient due to producing equilibrium at Qm, which does not have the lowest point at the curve AC.
● A monopoly has been found with fewer incentives to cut costs, as there are no competitors in the operating market.
● Monopolists set the price which is more than MC and identifies allocatively relatively inefficient.
● In a market competition, the output of the monopoly has been found at the Qc and Pc, at the point of C.
● In monopolistic market structure, it has been found to be a fall in the surplus of customers. Then the output of the business will be PM and QM.
● The triangle occurs considering Qm, Pm, M, C, Pc, and Qc depict the net loss of customers as well as the producers to the respective operating market.
● It can be seen from the diagram that monopolistic market structure also leads to fall of the surplus of the producers. However, some of the customer surpluses has been found to be captured by the industries.
Therefore, from the diagram of the monopolistic market structure, it can be said that the relative monopolists have been found with a degree to economies of scale. This ensures for the business to be beneficial from the lower costs of long-run average. It has been known that the monopolists may have lower amount of average costs while producing more. This can literally push the business to gain efficiency of scale.
(ii) Oligopoly diagram for short-run and long-run profit and loss
To explain the short run and long run profit and loss there has been found various diagram for explaining the oligopoly market structure. It has been found crucial to bring the mind of the industry to behave in an oligopolistic manner.
A firm in the oligopolistic market structure can maximise its profits at the point of Q1. At the point of Q1, MR has been assumed to be same as MC. Therefore, it can be said that changes in MC have no impact on the change of market price. In the scenario of profit and loss on the basis of short run and long run, the demand curve of oligopoly says the followings:
● Firms, as well as the industries, have been perceived as profit maximisers in the market.
● It shows that if one industry reduce prices, the other industries may file a suit against the respective industry. This is because the following industry may not want to lose their profit margin.
● It can also be seen that if one firm enhances the prices, other following firms have been found with the tendency to follow the same. This is because it helps to increase the profitability of the organisations.
● However, this curve does not show that the industries may have a competition over price for a similar kind of product.
● This curve does not express the way in which the price has reached to the first place.
In the oligopoly market structure, if the existing industries face collusion from the cartel then the industries have been found to be intended to fix the price. At the same time by fixing price the industries may try to maximise the profit margin by enhancing the output.
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