ACKNOWLEGMENTI am delighted becauseI managed to complete this Business Economics assignment by the given time.This assignment cannot be completed without personal attainment andenlightenment from my lecturer Mr Pilayanthran Rasiah; I also sincerely want touse this opportunity to thank my lecturer for his guidance and encouragement thatmotivate me to research deep to get this assignment done.
Last but not theleast; I will like to express my warm gratitude to Olympia college Malaysiamanagement for connecting us to IPE Management School Paris. TABLE OF CONTENT UNIT DESCRIPTION PAGE NO 1.0 EXECUTIVE SUMMARY 4 2.0 INTRODUCTION 5 3.
0 TASK (A) WHY PERFECT COMPETITION OFTEN DESCRIBED AS THE IDEAL MARKET STRUCTURE 6 3.1 PERFECT COMPETITION 6 3.2 WHAT MAKES THE PERFECT COMPETITION AND “IDEA” 7 4.0 TASK (B) 8 4.1 MONOPOLY 8-9 4.
2 CONSIDER THE PROPOSITION THAT MONOPOLY WILL INVARIABLY RESULT IN HIGHER PRICES AND LOWER OUTPUT COMPARE TO COMPETITIVE MARKET STRUCTURE 9 5.0 TASK (C) 10 5.1 OLIGOPOLY 10 5.2 WHY PRICES UNDERGO LESS VARIATION UNDER OLIGOPOLY COMPARE WITH OTHER MARKETS STRUCTURES? 11 6.0 TASK (D) 12 6.1 PRICE DISCRIMINATION 12 6.
2 PERSNAL DISCRIMINATION 12 6.3 GROUP DISCRIMINATION 12 6.4 PRODUCT DISCRIMINATION 13 6.5 GENDER DISCRIMINATION 13 7.0 CONCLUSION 14 8.0 REFRENCES 15 9.0 BIBLIOGRAPHY 16 1.
0 EXECUTIVE SUMMARYThe ideal concept of market structure is to differentiate the competitive levels in the business world, the analysis is based onassumption and adaptation to everyday lifesituations. In most cases it seems impossible togive a perfect narration about the market structure, the motives of every firmwhile producing is instant maximization of profit, which is the natural goalsand phenomenon, we understand with the time frame that while working on themarket structure described we have to understand the efficiency. We focus onperfect competition which literally not practically in real world. Our mainmotive is to explain briefly about perfect competition as an ideal of themarket structure. Meanwhile, the market structure, pricing and equilibrium of afirm 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 ofmarket structure is for the firm to understand the real scenario about thebusiness ethics. On the other hand no firm wantsto practice perfect competition because of profit maximization concept and theywant to monopolize their product and servicesfor more profit.Price discrimination in the other hand is practiced by firmsto achieve perfect price discrimination not the imperfect price discrimination, firstdegree, second degree and third degree of price discrimination classify thereason why it is important sometimes to practiceprice discrimination, there is advantages and disadvantages regarding thatwhich we explain briefly below. 2.0INTRODUCTIONThere 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 ofeach. The well-known market structures arenamely; Perfect competition, Oligopoly, Monopolyand Monopolistic competition. Each of them hasset of characteristics and assumptions which alter the decision making of thefirm and the profit they generate.
Nevertheless, it is important to notethat some of these market structures actually do not exist in a real life but just theoreticalconstructed. They are important because they are used to illustrate relevant aspects of competition in the firm’sdecision making. Moreover, they assist in comprehendingthe underlying economic principles in thesociety.Perfect competition is a marketstructure where a large number of small firms compete against each other withhomogenous products. Oligopoly is marketstructure where a small number of firms compete against each other. Monopoly ismarket structure where a single firm controls the products and services in theentire market.
Monopolistic competition is a market structure whereby a large number of small firms competingagainst each other with differentiated products and services.The Market structures,namely monopolisticcompetition, Oligopolies and Monopolies are consideredas variations of Imperfect competition in marketstructure.Pricediscrimination is a principle of charging different price rate for a particular product and services to different customers. Thereare different types of pricediscrimination which are ‘first degree, second degree and third degree pricediscrimination, Robinson (1933). Price discrimination can lead toprofit maximization, economies of scale, efficient useof infrastructure, managing the flow of customers.
There are many thingsadvantage and also disadvantages such as exploitation of captive marketand limitations. 3.0 TASK(A) WHY PERFECT COMPETITION OFTEN IS DESCRIBED AS THE”IDEAL” MARKET STRUCTURE? 3.
1 PERFECT COMPETITION: Perfect competition is considered as amarket structure where buyers and sellers do not have any market power on theproduct and services, thus considered as price takers. This form of marketstructure is considered as the pure competitionbecause everything is stabilized, the buyers feel good and the sellers feel good, there is no significant ofimpediment 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.They are:-.
v No one has the ability to affect the price; the price will bedetermined by the interaction of supply anddemand. v Customerscan purchase products and obtain services from any sellers;no preferences should be rendered to sellers orbuyers.v There isno cost of substitution as the goods will exactly be the same or homogeneous in nature.
v There isfreedom of entry and exitv There isno cost associated with transportation v Buyersand sellers want to maximize the profit v Governmentdoes not get involved. Referring to all thiscriteria, perhaps, it is rare to see any firm which matches up with theseassumptions or criteria in present market place. One of the examples ofperfect competition is foreign exchange market whereby traders have access tobuyers and sellers. They have adequateinformation about rates before proceeding to purchase and they can compareprices. Evaluating this kind of trade deeply isdoes not really suit perfect competition because banks may use one rate but other licensed money changers exchange rate may nottally with the banks’ rates for the currencies that are traded.
Therefore thereis no 100% perfect competition in the market, they said stock exchangeis one of them but looking at it closely you will realizeit not 100% identical, the same applies to the agriculturalindustries. 3.2 What makes the perfect competition an “IDEAL” market structure: here are the benefits, Jessica (1985)v There isno advertisement for perfect competition because the buyersand sellers have full knowledgeabout the products and services.
v There isno barrier to entry or exit the market, so it isimpossible for monopoly power to appear. Any firm canchoose to enter or exit the market at any time.v There isno corruption in the trade because everything is in black and white. 4.0 TASK(B) CONSIDERTHE PROPOSITION THAT MONOPOLY WILL INVARIABLY RESULT IN HIGHER PRICE AND LOWEROUTPUT COMPARED TO COMPETITIVE MARKET STRUCTURE.4.1 “Monopoly”: this isthe main key for this task; there is a need toelaborate what monopoly stands for before embarkingon this question and answer it correctly.Definition: Monopoly is type of market structure where a single firm controls the whole salesand services of a particular product in the entire market.
The firm hasthe market power to decide what they want to do in terms of price inflation ofthe product and there are no alternatives forthe consumers or buyers. The Monopolist firm caneasily reduce output to increase price for earn moreprofit. In monopoly, there are certain turn offwhich this market structure possess. The following assumptions apply to monopoly:v Barriers to entry and exit exist.v Priceinflation and discrimination exists. v One firmdominates the market.v Control of resources exists.v Economiesof scale can be achieved.
v Substandardproducts may be produced and services rendered too can be poorOne ofthe examples of monopoly in Malaysia is Astro, over the past years; thisentertainment holding company dominates the entire market in Malaysia in termsof cable television broadcast and radio. Due to monopolist services, the consumers do not have choice to debate about theprices of their product package because if you do not accept the terms and conditions you will not beable to subscribe to use the cable televisionwhich they monopolise. Some consumers are notsatisfied but there is no other choice to make.Anotherglobal monopoly firm for an example is Microsoft Corporation, which can be seen as a firm withMonopoly power because it has controlover software products which prove to besuccessful over recent years. Buyers and sellers have no power over this firm. Over 1.8 Billion peopleacross the globe are using the Microsoft products andthe owner ranked as the richest in the world forover 12 years. Though other software companies exist but Microsoft dominates andleads the market.
Most firmswith monopolistic powers are not desirable due to less quality outputs andhigher rates compared to competitive market environment. Sometimes Government play a part in theMonopoly market structure for example in the provisionof utilities such as electricity and water. 4.2 Consider the proposition that monopoly willinvariably result in higher prices and lower output compared to competitivemarket structureAs mentionedabove monopoly firm uses its monopoly power tocontrol their products and services making their prices higher sometimes withsubstandard output to compared the competitive market structure, for example: I lamented about the monopoly that Astro cable Television plays in Malaysiapreviously whereby the sports package they telecast is not what I really wantbut I have to pay for it because is in their terms and conditions.I really like watching English and Italian premier league football matchbut sometimes they skip to show the important matches that I wanted and showdifferent matches. I cannot do anything about it,I have no other choice because there is no other cable Television available tosubscribe then. If I fail to pay bills they will terminate the contract and Iwill not watch anymore, there is no keenness to improvetheir services because there is no competition.
“I pay higher for unsatisfiedoutput”. 5.0 TASK(C) Can you explain why prices undergo less variationunder oligopoly compared with other markets structures?5.1 Oligopoly: is one ofthe market structures with distinctive quality products in the market firm. Companiesmay have the same product but are slightly different.
Oligopolyis a situation where the market is dominated by only small number of firms and theseresults in limited competition, majority of the market areinterdependent. Oligopoly firm uses unique techniques bymonitoring their opponent in making decision based on the products andservices, not from any other source like technical information or governmentpolicies, Oligopolies firm can either compete against each other or they might endup collaborating, by introducing the idea of collaborating they have collectivemarket power to increase their product prices and earn more profit. There are some assumptions related to theoligopolistic market structure. They are:-v There arebarriers in entry and exit in the market structure v The Market is dominated by few firms v Some oftheir products are homogenous v Priceinflation existsv Profit maximization can be realisedOne of the examples of oligopolistic firm is Coca-Cola and 7up. Both these firms are widely known forthe soft drink production across the globe. If you look at their products, there aresimilarities in prices, but design and taste is slightly different.
They control many beverages and soft drinkswith 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, SonyCorporation, Nintendo and Microsoft dominates the gaming world and they controlthe price, the product is homogenous, and there is barrier to entry and exit . 5.2 Why prices undergo less variation underoligopoly compared with other markets structures?As statedabove, the reasons are because the oligopoly firms are limited and they setaction that they think is the best regardingwhat other firms are doing. 6.0 TASK(D)Explainwhat is price discrimination and the conditions which must be present to allow producersto practice price discrimination. 6.
1 Price Discrimination simplymeans selling and charging different price unit to consumers for the sameproducts and services, Philips(1985). “The act of selling the same article, producedunder single control at different prices to different buyers is known as pricediscrimination.” Price discrimination is possible when the monopolist sells indifferent market in such a way that it is not possible to transfer any unit ofthe commodity from the cheap market to the moreexpensive market, Robinson (1933). Firm uses price discrimination to make mostrevenue from their customers. This tends to allowthe producer to capture more surpluses by selling to consumers at prices closerto their maximum they are willing to pay.There aredifferent ways where a firm uses price discrimination. The price informationshould not be restricted and discriminated group must be aware that their consumers are charged differently.
Condition forprice discriminations, Scherer and Rose (1990): v 6.2 Personal Discriminationa. Measuringthe usage: consumers using a product and servicesmore often can obtain higher cost of charges. Example: electricity bills. b. Size upincome: prominent individual consumers are expected to possess more inelasticdemand and they end up been charged higher, more than less affluent consumers.Example: in legal firm and medical services.
v 6.3 Group Discrimination a. Surplus: Excesssupply of goods are given out in low rate to prevent depressing domesticmonopoly prices, this happens more often to firm that upgrade their product toa newer version. Example: Smartphones, Television.b. Attractcustomers/Promote: prices for new customers can be cheaper sometimes than existing customers; the reasonis just to develop new brand loyalty. This can be referred to as introductorypricing.
Example: telecommunication.c. MaintainLoyalty: Discount often given to bulk buyers, or volume discounts or frequentconsumers. Example: company buying computers in bulk easily get cheaper morethan individuals buying for personal use.
v 6.4 Product Discrimination: a. Stockclearance: big firm do stock clearance to certainproducts when intend to deplete their inventory. In doing so, prices of theitems will be reduces to induce more purchase by consumers with tight budget.
Example: Walmart sales, Zara sales on wears.b. Off peaktime switch: some goods and services with time consumptionpattern often use this, they charge lower prices during off peak period toattract customers, it is part of business strategy.Example: Airlines rate while traveling early morning, Hotel rates during offpeak, Pub and Bistro happy hour rate on drinks.c. Skimming: Designa price to exploit customers’ eager, inspires them to purchase a new brandproduct. Example: launch a new smartphone,introductory of latest automobile prices. d.
Appeal toclasses: charge higher quality products to achieve huge markups than with lowerquality products. Example: luxury cars and economy cars. v 6.
5 Gender Discrimination: Certainmarket price rate favor gender, based on thatothers feel discriminated regarding gender based price. Example: Wednesdayladies night at the bar is more favorable for the ladies in terms of price ratethan gentlemen, Haworth (2014).7.
0 CONCLUSIONCompetition in economics simply means to offersimilar product and services from multitude of firms for different price, asexplained above the assignment. We have perfect competition which is rare inthe entire market nowadays but it is the ideal type of market structure.Everybody wants to buy products and service at the same rate from differentmerchant having full knowledge about the priceof the product. It feels good to purchase products without been discriminated forexample, buying mobile phone credit the same price across the street. You willnot be charged extra money when purchasing that even in ‘5 star’ mart or bigshopping plaza, although buying in bulk from network provider attracts pricediscrimination which makes it imperfect competition. Buying soft drinks or food items might beslightly different from vendors across the street and this is not perfectcompetition, it classified as imperfect competition because of Monopoly andOligopoly practice.
People have been tormented from imperfectcompetition these days, making them to waste time shopping in supermarket and minimarts. You find out what you are craving for has different brands and you gets confusein making the decision.. Look at smartphone firms nowadays; if you do not haveany 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 andmany more are for making calls, surfing web and texting, basically it is allfor communication but different prices due to brand names, model and operatingsystem.
Apple incorporation holds a Monopoly position in their IOS operatingsystem and has no competitor, while Samsung uses androidoperating system, it has so many competitors. Meanwhile, masses aresuffering from these firms because they keep introducing new brands yearly,maximizing profit and competing; people getaddicted and waste money. The smartphone business is a good example of theimperfect competitions in the market structure because they practice Oligopoly and Monopoly.From the imperfect competition in market structurecomes Price discrimination from Monopolist and Oligopolists. If the entire market practice perfectcompetition there will be no price discrimination, equal service will be givento consumers, no preference although there is perfect price discriminationwhich favor children and senior citizens and also imperfect pricediscrimination which is due to products and services, gender, group orpersonal. 8.
0 REFERENCES 1. BarryHaworth(2014) Economics 442; price discrimination summary: http://econpage.com/301/handouts/PriceDisc/pdisc.html accessedon 26th December 20172. Jessica85 (January 27 2010) Essay for student: why is perfect competition oftendescribed as the idea market structure? Compare and contrast with other knownmarket structures; www.essaysforstudent.
com/Business/Why-Is-Perfect-Competition-Often-Described-as-the/47571.htmlaccessed on 26th December 20173. JoanRobinson (1933) the economics of imperfect competition 4. Philps,L. (1985). The Economics of Price Discrimination, Cambridge University Press.5.
Schererand Rose D. (1990), industrial Market Structure and Economic Performance 3rdedition6. TejvanPettinger (2016) Economics:www.economicshelp.org/microessays/markets/perfect-competition/ accessed on 26thDecember 2017 9.0 BIBLIOGRAPHY 1. https://courses.
lumenlearning.com/boundless-economics/chapter/price-discrimination/ accessedon 26 Dec 20172. http://www.economicsonline.co.
uk/Business_economics/Price_discrimination.html accessedon 26 Dec 20173. http://www.yourarticlelibrary.
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https://www.bartleby.com/essay/Market-Structure-of-Oligopoly-F3H5WJNLK6ZZSaccessed on 26 Dec 2017