I am delighted because
I managed to complete this Business Economics assignment by the given time.
This assignment cannot be completed without personal attainment and
enlightenment from my lecturer Mr Pilayanthran Rasiah; I also sincerely want to
use this opportunity to thank my lecturer for his guidance and encouragement that
motivate me to research deep to get this assignment done. Last but not the
least; I will like to express my warm gratitude to Olympia college Malaysia
management for connecting us to IPE Management School Paris.
TABLE OF CONTENT
PERFECT COMPETITION OFTEN DESCRIBED AS THE IDEAL MARKET STRUCTURE
MAKES THE PERFECT COMPETITION AND “IDEA”
THE PROPOSITION THAT MONOPOLY WILL INVARIABLY RESULT IN HIGHER PRICES AND
LOWER OUTPUT COMPARE TO COMPETITIVE MARKET STRUCTURE
PRICES UNDERGO LESS VARIATION UNDER OLIGOPOLY COMPARE WITH OTHER MARKETS
1.0 EXECUTIVE SUMMARY
The ideal concept of market structure is to differentiate the competitive levels in the business world, the analysis is based on
assumption and adaptation to everyday life
situations. In most cases it seems impossible to
give a perfect narration about the market structure, the motives of every firm
while producing is instant maximization of profit, which is the natural goals
and phenomenon, we understand with the time frame that while working on the
market structure described we have to understand the efficiency. We focus on
perfect competition which literally not practically in real world. Our main
motive is to explain briefly about perfect competition as an ideal of the
market structure. Meanwhile, the market structure, pricing and equilibrium of a
firm will be discussed analytically and logically, market structures are classified into four parts which are Perfect competition,
Monopolistic competition, Oligopoly and Monopoly. These allow the firm to choose the market structure they use while dealing with consumers.
The overview of
market structure is for the firm to understand the real scenario about the
business ethics. On the other hand no firm wants
to practice perfect competition because of profit maximization concept and they
want to monopolize their product and services
for more profit.
Price discrimination in the other hand is practiced by firms
to achieve perfect price discrimination not the imperfect price discrimination, first
degree, second degree and third degree of price discrimination classify the
reason why it is important sometimes to practice
price discrimination, there is advantages and disadvantages regarding that
which we explain briefly below.
There are different types of market structures that make up the economy today. However,
the assignment provides a brief explanation about them and the basic examples of
each. The well-known market structures are
namely; Perfect competition, Oligopoly, Monopoly
and Monopolistic competition. Each of them has
set of characteristics and assumptions which alter the decision making of the
firm and the profit they generate.
Nevertheless, it is important to note
that some of these market structures actually do not exist in a real life but just theoretical
constructed. They are important because they are used to illustrate relevant aspects of competition in the firm’s
decision making. Moreover, they assist in comprehending
the underlying economic principles in the
Perfect competition is a market
structure where a large number of small firms compete against each other with
homogenous products. Oligopoly is market
structure where a small number of firms compete against each other. Monopoly is
market structure where a single firm controls the products and services in the
entire market. Monopolistic competition is a market structure whereby a large number of small firms competing
against each other with differentiated products and services.
The Market structures,
competition, Oligopolies and Monopolies are considered
as variations of Imperfect competition in market
discrimination is a principle of charging different price rate for a particular product and services to different customers. There
are different types of price
discrimination which are ‘first degree, second degree and third degree price
discrimination, Robinson (1933). Price discrimination can lead to
profit maximization, economies of scale, efficient use
of infrastructure, managing the flow of customers. There are many things
advantage and also disadvantages such as exploitation of captive market
(A) WHY PERFECT COMPETITION OFTEN IS DESCRIBED AS THE
“IDEAL” MARKET STRUCTURE?
3.1 PERFECT COMPETITION: Perfect competition is considered as a
market structure where buyers and sellers do not have any market power on the
product and services, thus considered as price takers. This form of market
structure is considered as the pure competition
because everything is stabilized, the buyers feel good and the sellers feel good, there is no significant of
impediment to competition. This type of market structure is rare and may not exist in the real world.
There are some assumptions related to perfect competition.
No one has the ability to affect the price; the price will be
determined by the interaction of supply and
can purchase products and obtain services from any sellers;
no preferences should be rendered to sellers or
no cost of substitution as the goods will exactly be the same or homogeneous in nature.
freedom of entry and exit
no cost associated with transportation
and sellers want to maximize the profit
does not get involved.
Referring to all this
criteria, perhaps, it is rare to see any firm which matches up with these
assumptions or criteria in present market place. One of the examples of
perfect competition is foreign exchange market whereby traders have access to
buyers and sellers. They have adequate
information about rates before proceeding to purchase and they can compare
prices. Evaluating this kind of trade deeply is
does not really suit perfect competition because banks may use one rate but other licensed money changers exchange rate may not
tally with the banks’ rates for the currencies that are traded. Therefore there
is no 100% perfect competition in the market, they said stock exchange
is one of them but looking at it closely you will realize
it not 100% identical, the same applies to the agricultural
3.2 What makes the perfect competition an “IDEAL” market structure: here are the benefits, Jessica (1985)
no advertisement for perfect competition because the buyers
and sellers have full knowledge
about the products and services.
no barrier to entry or exit the market, so it is
impossible for monopoly power to appear. Any firm can
choose to enter or exit the market at any time.
no corruption in the trade because everything is in black and white.
THE PROPOSITION THAT MONOPOLY WILL INVARIABLY RESULT IN HIGHER PRICE AND LOWER
OUTPUT COMPARED TO COMPETITIVE MARKET STRUCTURE.
4.1 “Monopoly”: this is
the main key for this task; there is a need to
elaborate what monopoly stands for before embarking
on this question and answer it correctly.
Definition: Monopoly is type of market structure where a single firm controls the whole sales
and services of a particular product in the entire market. The firm has
the market power to decide what they want to do in terms of price inflation of
the product and there are no alternatives for
the consumers or buyers. The Monopolist firm can
easily reduce output to increase price for earn more
profit. In monopoly, there are certain turn off
which this market structure possess. The following assumptions apply to monopoly:
Barriers to entry and exit exist.
inflation and discrimination exists.
dominates the market.
Control of resources exists.
of scale can be achieved.
products may be produced and services rendered too can be poor
the examples of monopoly in Malaysia is Astro, over the past years; this
entertainment holding company dominates the entire market in Malaysia in terms
of cable television broadcast and radio. Due to monopolist services, the consumers do not have choice to debate about the
prices of their product package because if you do not accept the terms and conditions you will not be
able to subscribe to use the cable television
which they monopolise. Some consumers are not
satisfied but there is no other choice to make.
global monopoly firm for an example is Microsoft Corporation, which can be seen as a firm with
Monopoly power because it has control
over software products which prove to be
successful over recent years. Buyers and sellers have no power over this firm. Over 1.8 Billion people
across the globe are using the Microsoft products and
the owner ranked as the richest in the world for
over 12 years. Though other software companies exist but Microsoft dominates and
leads the market.
with monopolistic powers are not desirable due to less quality outputs and
higher rates compared to competitive market environment. Sometimes Government play a part in the
Monopoly market structure for example in the provision
of utilities such as electricity and water.
4.2 Consider the proposition that monopoly will
invariably result in higher prices and lower output compared to competitive
above monopoly firm uses its monopoly power to
control their products and services making their prices higher sometimes with
substandard output to compared the competitive market structure, for example: I lamented about the monopoly that Astro cable Television plays in Malaysia
previously whereby the sports package they telecast is not what I really want
but I have to pay for it because is in their terms and conditions.
I really like watching English and Italian premier league football match
but sometimes they skip to show the important matches that I wanted and show
different matches. I cannot do anything about it,
I have no other choice because there is no other cable Television available to
subscribe then. If I fail to pay bills they will terminate the contract and I
will not watch anymore, there is no keenness to improve
their services because there is no competition. “I pay higher for unsatisfied
(C) Can you explain why prices undergo less variation
under oligopoly compared with other markets structures?
5.1 Oligopoly: is one of
the market structures with distinctive quality products in the market firm. Companies
may have the same product but are slightly different. Oligopoly
is a situation where the market is dominated by only small number of firms and these
results in limited competition, majority of the market are
Oligopoly firm uses unique techniques by
monitoring their opponent in making decision based on the products and
services, not from any other source like technical information or government
Oligopolies firm can either compete against each other or they might end
up collaborating, by introducing the idea of collaborating they have collective
market power to increase their product prices and earn more profit.
There are some assumptions related to the
oligopolistic market structure. They are:-
barriers in entry and exit in the market structure
v The Market is dominated by few firms
their products are homogenous
v Profit maximization can be realised
One of the examples of oligopolistic firm is Coca-Cola and 7up. Both these firms are widely known for
the soft drink production across the globe. If you look at their products, there are
similarities in prices, but design and taste is slightly different. They control many beverages and soft drinks
with their trademark. They compete with each other in terms of products. When Coca-Cola introduced “Fanta”, 7up came in with “Miranda”.
Both drinks are the same price rate and their taste is almost the same.
Another example of oligopolistic products are in gaming company, Sony
Corporation, Nintendo and Microsoft dominates the gaming world and they control
the price, the product is homogenous, and there is barrier to entry and exit .
5.2 Why prices undergo less variation under
oligopoly compared with other markets structures?
above, the reasons are because the oligopoly firms are limited and they set
action that they think is the best regarding
what other firms are doing.
what is price discrimination and the conditions which must be present to allow producers
to practice price discrimination.
6.1 Price Discrimination simply
means selling and charging different price unit to consumers for the same
products and services, Philips
(1985). “The act of selling the same article, produced
under single control at different prices to different buyers is known as price
discrimination.” Price discrimination is possible when the monopolist sells in
different market in such a way that it is not possible to transfer any unit of
the commodity from the cheap market to the more
expensive market, Robinson (1933).
Firm uses price discrimination to make most
revenue from their customers. This tends to allow
the producer to capture more surpluses by selling to consumers at prices closer
to their maximum they are willing to pay.
different ways where a firm uses price discrimination. The price information
should not be restricted and discriminated group must be aware that their consumers are charged differently. Condition for
price discriminations, Scherer and Rose (1990):
v 6.2 Personal Discrimination
the usage: consumers using a product and services
more often can obtain higher cost of charges. Example: electricity bills.
income: prominent individual consumers are expected to possess more inelastic
demand and they end up been charged higher, more than less affluent consumers.
Example: in legal firm and medical services.
v 6.3 Group Discrimination
supply of goods are given out in low rate to prevent depressing domestic
monopoly prices, this happens more often to firm that upgrade their product to
a newer version. Example: Smartphones, Television.
customers/Promote: prices for new customers can be cheaper sometimes than existing customers; the reason
is just to develop new brand loyalty. This can be referred to as introductory
pricing. Example: telecommunication.
Loyalty: Discount often given to bulk buyers, or volume discounts or frequent
consumers. Example: company buying computers in bulk easily get cheaper more
than individuals buying for personal use.
v 6.4 Product Discrimination:
clearance: big firm do stock clearance to certain
products when intend to deplete their inventory. In doing so, prices of the
items will be reduces to induce more purchase by consumers with tight budget.
Example: Walmart sales, Zara sales on wears.
time switch: some goods and services with time consumption
pattern often use this, they charge lower prices during off peak period to
attract customers, it is part of business strategy.
Example: Airlines rate while traveling early morning, Hotel rates during off
peak, Pub and Bistro happy hour rate on drinks.
a price to exploit customers’ eager, inspires them to purchase a new brand
product. Example: launch a new smartphone,
introductory of latest automobile prices.
classes: charge higher quality products to achieve huge markups than with lower
quality products. Example: luxury cars and economy cars.
v 6.5 Gender Discrimination: Certain
market price rate favor gender, based on that
others feel discriminated regarding gender based price. Example: Wednesday
ladies night at the bar is more favorable for the ladies in terms of price rate
than gentlemen, Haworth (2014).
Competition in economics simply means to offer
similar product and services from multitude of firms for different price, as
explained above the assignment. We have perfect competition which is rare in
the entire market nowadays but it is the ideal type of market structure.
Everybody wants to buy products and service at the same rate from different
merchant having full knowledge about the price
of the product. It feels good to purchase products without been discriminated for
example, buying mobile phone credit the same price across the street. You will
not be charged extra money when purchasing that even in ‘5 star’ mart or big
shopping plaza, although buying in bulk from network provider attracts price
discrimination which makes it imperfect competition. Buying soft drinks or food items might be
slightly different from vendors across the street and this is not perfect
competition, it classified as imperfect competition because of Monopoly and
People have been tormented from imperfect
competition these days, making them to waste time shopping in supermarket and mini
marts. You find out what you are craving for has different brands and you gets confuse
in making the decision.. Look at smartphone firms nowadays; if you do not have
any particular brand in mind to purchase and goes to smartphone outlet,
definitely you will be in a daze to choose. Apple, Samsung, Nokia, Oppo phones and
many more are for making calls, surfing web and texting, basically it is all
for communication but different prices due to brand names, model and operating
system. Apple incorporation holds a Monopoly position in their IOS operating
system and has no competitor, while Samsung uses android
operating system, it has so many competitors. Meanwhile, masses are
suffering from these firms because they keep introducing new brands yearly,
maximizing profit and competing; people get
addicted and waste money. The smartphone business is a good example of the
imperfect competitions in the market structure because they practice Oligopoly and Monopoly.
From the imperfect competition in market structure
comes Price discrimination from Monopolist and Oligopolists. If the entire market practice perfect
competition there will be no price discrimination, equal service will be given
to consumers, no preference although there is perfect price discrimination
which favor children and senior citizens and also imperfect price
discrimination which is due to products and services, gender, group or
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