Monopolistic Competitive And Oligopoly Market Structures

Published Date: 02 Nov 2017

ii. Module Title: The International Economy

iii. Assessment Title: Final Essay

iv. Assignment Title: What are the main differences between Monopolistic Competitive and Oligopoly market structures? Which of these market structures best serves the interests of the consumer and why? Use diagrams to support and illustrate your answers.

v. Tutor Name: Jemima Okembo

vi. Student ID Number: 200937993

vii. Date of Submission: Friday 9th November

viii. Word Count: 1028

In the recent year ,there have much differences market structure in the market ,for example :Prefect Competition, Monopolistic Competition, Oligopoly , Monopoly and Pure Monopoly .This essay will compare the main differences between Monopolistic Competition and Oligopoly market structures and which of these market structures best servers the interests of the consumer?

Firstly , Monopolistic competition mean a market structure which firms have many competitors but they also sell the slightly different product and there have not any barriers to entry or exit ,the economic efficiency is high ,the consumer and producer knowledge are imperfect . Restaurant is the good example, their products are very similar but their services have some different so they want to control the prices and the quality to attract the customers.(Taylor,2006)

Figure1.0 Monopolistic Competitive in the short run Kinked Demand Curve

Q1

P2

P1

Figure1.0, there are Marginal Revenues curve, Average Revenues curve, Average Cost curve and Marginal Cost curve in the monopolistic competitive short run .The firm maximises profit is MC=MR giving price P1 and Q1. There are some difference is the AR curve and MR curves are more flat .In monopolistic competitive, the companies face many competitive rival so the firm’s demand curve is very elastic. In this figure , AR>AC so there have the supernormal profit.

Figure1.1 Monopolistic Competitive in the long run Kinked Demand Curve

Figure1.1 There are MR1 curve,MR2 curve, D1(AR1) curve,D2(AR2) curve, AC curve and MC curve. MR1 curve and D1 curve will shift to left from MR1 to MR2 and from D1 to D2 than MR1=MC ,it mean there have a normal profit.

Oligopoly mean a market structure which have a few firms dominate and they have control the price but the barriers to entry or exit is very high. Tesco and Sainsbury are good examples ,their product are very similar but they have their own branded products ,the barriers to entry is very high .For model of cartel ,the companies will set a target and work together ,they will try to get the highest profit and pushing up the prices. For game theory, Tesco and Sainsbury’s will set rule which is about cooperation and interdependence, it means they will make their produce’s prices very closely or the quantity of produce is very nearly.

Figure2.0 in the long run Kinked Demand Curve

Figure 2.0. There are MR curve, AR curve, AC curve and MC curve. The Demand curve above the P is relatively elastic. It means if the price increased slightly, the quantity and revenues will decrease significantly .On the other hand , the demand curve below the P is relatively inelastic .It means if the price increase than the quantity will decrease slightly .

In Monopolistic Competition, there have many advantage, for pricing, The companies always set the lower price to attract the customers .For product Quality and Development, the firms will improve product quality to increase their revenue and its’ brand, they also try to decline the price to make more and more profit, sometime they will decrease the cost of production to increase the number of product. For price discrimination ,the companies can control the price discrimination, what is control the different price to different age groups ,the companies can decide what kind of the customers receive discounts on good and service. For example, student receiving student discount and senior citizens receiving the discount for the elderly, the companies use this strategy to target their customers and increase more market share. (Taylor, 2006)

On the other hand ,there will show the disadvantage for Monopolistic Competition, For example high expenses .In Monopolistic Competitive ,lots of firms will paid a high expenses in marketing and advertising ,some companies have to send a high cost on advertising to make them more popularity in the market known and lots of firms will spend more and more money to stand out their product in the market such as product packaging .this becomes a extra cost which increase the expense for operating cost . (Capozzi, 2011)

The advantage of Oligopoly, For profit, in the oligopoly ,there only have a few business which have a high market share and use the product or service to make a big profit to cover or decline the sales cost . They just have a few firms in the market so they have limited competition and they can decreased the costs of advertising and promotion because there is a few competition so they can use the least cost to build the largest profit .For determine prices, they don’t need to follow with market, the company can control the market because there just have a few competitors so they can control the prices for goods what is people want. For long term profit, the business not just make a large profit, they are also keeping the profit for a long haul. They will spent a long time and lots of money for a frim to work. During this times. the oligopoly companies can maintain their profits for a long time.(Dr Damien Bazin)

On the other hand, there have many disadvantage in Oligopoly .The first is the power in the hands of a few .In a normal market, the supply and demand always effect the price, the business will reduce the price to increase their market share but in an Oligopoly, there just have a few choice for the customers so the business is the price makers .In fact,lots of customers are unable to find anything to instead of the product so the must buy the product with the high prices .

The main difference between monopolises competition and oligopoly, for pricing .In monopolises competition, the companies will set a lower prices to attract more customers but in Oligopoly, the companies is the price maker, it means the business can control the prices. For type of product, in monopolistic competition, these companies’ produces are very close so the customers can have difference choice but in the oligopoly, there just have a few companies so the customers can’t have any choice .For Barriers to entry, In monopolistic competition, there is easy to entry but in oligopoly the barriers to entry is very high .

To conclusion, it is very clean to seen that the monopolistic competition are better than oligopoly, because the customers have more choice in monopolistic and it can increase the quality of produce.