Monopoly And Monopolistic Competition Essay

Question:

Discuss about the Monopoly and Monopolistic Competition.

Answer:

Introduction

In economics, a market structure refers to the nature and type of competition that prevails in a market for the goods and services it provides. However, before doing an in depth study about the market structure it is very crucial to understand the meaning of market. Therefore in simple terms it is defined as a nominated area where the various goods and services are interchanged for a monetary value. There various factors which determine the structure of a market such as the number of buyers and sellers present for a particular good or service, the nature of the product being sold or the service being offered, the conditions for being a part of the market structure and whether there is any restrictions for the entry into the same and what are the economies of scale. Thus based on the above mentioned factors, four kinds of market structures exist namely monopolistic competition, oligopoly and monopoly. The said report details about these market structures with respect to Australia and also discusses the same with the example of the organization –Woolworths (Lionis, 2005).

Monopolistic Competition

Second is the monopolistic competition structure where the number of competitors is many but none of them sell similar products. Here the owners of the businesses have a crucial role to perform because of the large amount of risk attached with the decisions being made by them. The main highlight in this structure is the dissimilarity in the products and the services being offered by the various players, the uniqueness in the marketing techniques and the distribution methodologies adopted. Similar to the above the said structure of the market also does not entail to any kind of restriction to the entry and exit of the sellers. However, the most important feature which this market structure has to offer is the government interference which is accepted whole heartedly by the present sellers. The same is beacsue they try to stop new entrants via this manner.

The said graph makes it clear that in a monopolistic competition market structure the cost of the products will be in the upward direction and the manufacture of the product will be on the downward slope.

This kind of a market structure is the most prevalent in Australia where the number of firms are very less so much that it even reminds one of the monopolistic market structure as well in some places. However the number has not been specifically defined in the oligopoly market structure but the same should be limited to such that one firm should be able to control the other firms in the structure by a long way (econ.ohio-state.edu. 2013). In this structure it is very difficult for the new firms to enter and demand a position in the market. However it is crucial to understand the impact of oligopoly on the international trade because the firms here are bigger in size

The most striking example of an organization which operates in this market structure is the super market giant of Australia Woolworths. In this industry in Australia, there is only one other player apart from the one mentioned i.e. Coles. It can also rightly be called as a duopoly market structure where only two firms rule (Shakibaei, 2012). The location also plays a vital role in determination of oligopoly and the kind of products being offered by Woolworths. Here it is situated only in Australia and New Zealand and so are its rival Coles. They sell similar goods and Woolworths have the ability to handle the price changes with ease because of the entry restrictions and only one competitor in the market. The level of competition between Woolworths and its rival company Coles is so tough that it does not give room for the entrance of any other firm thus ensuring high entry barriers which is one of the key feature of the oligopoly (Dimech, 2014).

However it is very important to understand one very striking feature of this kind of a market structure i.e. the said structure is possible if the main competitors who have the majority of the market share do not allow entry of any other firm. And in this scenario Woolworths is not the only one who is contributing to the oligopoly structure, but the same is helped by Coles as well. Together they have a market share of eighty percent. The existence of oligopoly in Australia is terrifyingly usual (Evans, 2011). The same is much prevalent due to lack of proper enforcement of competition laws. Due to the said negligence, major companies and organizations end up taking over each other businesses without thinking whether the same is anticompetitive or not. Woolworths is seen to expand its business within its comfort zone and hence does not make efforts to expand its business outside the territories of Australia and New Zealand (Orreconomics.weebly.com., 2015).

Woolworths and its competitor Coles take advantage of their market power to the most. Earlier the accounting standards demanded them to display about the rebates they obtained from the suppliers but the same got lapsed after the introduction of the new standards. Further to this the supermarkets have a significant part to play in the progression of the Australian Agricultural Sector and an increase in the market share of Woolworths with its competitor has created an environment of concern for many farmers. The company has got the power to decide upon the prices they would charge for the various products and have also maintained and developed a high end expectation amongst the consumers. Due to this there is immense pressure on the other retail chains and the farmers also are seen in a very weak position due to decisions made by Coles and Woolworths. Even though Woolworths have been able to supply products as per the choices of the customers and that too at very cheap prices yet the same has been detrimental for the financial health of the farmers. One such striking action conducted by Woolworths and also Coles was selling milk for A$1 thus had to face huge criticism for misusing their market power (Bariacto & Di Nunzio, 2014).

This kind of a market structure is said to exist when there is a sole seller of a product which has no substitutes. Here the seller gets extra ordinary profits and they have the benefit of emerging as a winner in the international market as well. The said structure does not have a supply curve as they are the ones who determine the prices. The monopoly market structure does not allow any other firm to enter the market thus portraying a very high entry barrier. In a monopoly the firm can easily change the price and the volume of the good it supplies at its own will. Microsoft is a perfect example of a monopoly market structure which has a monopoly in the domestic market and has also become a part of the international market place thereby helping the country to earn export revenues as well. Therefore the monopoly contributes in generating a higher industrial progression. Similar to oligopoly with a slight differentiation of the fact that there is only one single firm ruling, this kind of a market structure has a very stringent barrier into the market. Due to the same the level of intervention by the government is very high simply to ensure that the monopoly firm does not take undue advantage of his position and exploit the consumers.

Thereby on understanding the four market structures, it can be rightly said that the seller as well as the buyers all have varying degree of preferences and choices. As per my recommendation, oligopolistic is one of the most preferred market structures as it proves to be most beneficial from a suppliers view point since the interference of the government is low and the number of competitors is also few although the entry in the said market structure is difficult as is seen in the case of the supermarket industry of Australia where Woolworths supported by Coles do not allow any other firm to enter. The profitability is also more as compared to the other market structures thus the firms which are already a part of the oligopoly, ensure that the said structure is maintained (Tyers, 2014). The same is very much evident from the kind of structure that is present in Australian Supermarket industry.

Conclusion

Thus if the above mentioned market structures and the kinds which are most prevalent in Australia are summarised then it would seem very clear that oligopoly, monopoly and monopolistic competition form of market structures are highly prevalent. Woolworths is one of the perfect examples of a oligopoly or one can also name it as a duopoly market structure as in the supermarket industry in Australia only two companies rule mainly Woolworths and Coles and the others smaller one have a very minute share. The other market structures are also prevalent but the oligopoly is the highly prevalent in Australia. Woolworths and Coles are one amongst the many oligopolies which are found in the market structure of Australia.

References:

Bariacto,N., & Di Nunzio,J., (2014), Market Power in the Australian Food System, Available at (Accessed 15th March 2017)

Dimech,A., (2014), Australian Oligopolies, Available at (Accessed 14th March 2017)

econ.ohio-state.edu. (2013). Oligopoly. Available at (Accessed 14th March 2017)

Evans,J., (2011), Coles and Woolworths duopoly hard to swallow, Available at (Accessed 14th March 2017)

Harford, T. (2008). Perfect Competition, Monopoly and Monopolistic Competition. Available at (Accessed 14th March 2017)

Kitney,D & White,A., (2013), We are an oligopoly economy: Robb, Available at (Accessed 14th March 2017)

Lionis,N., (2005), Market Structure, Available at (Accessed 14th March 2017)

Orreconomics.weebly.com., (2015), Woolworths- Why an Oligopoly, Available at (Accessed 14th March 2017)

Shakibaei,B., (2012), Duopolies : Woolworths and Coles, Available at (Accessed 14th March 2017)

Tyers,R., (2014), Service Oligopolies and Australia’s Economy-Wide Performance, Available at (Accessed 14th March 2017)

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