Perfect Competition Market And Monopoly Market Economics Essay
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Published: Mon, 5 Dec 2016
What is the market? Market is a place and sellers come face to face with buyers in that place. But communication and transportation revolution changes it from a place Todays technology makes it an ”environmental.” Seller or buyers can supply or demand any goods with phone, fax or internet. The market lost its concrete pattern.
The markets status and quality are very important for the implementation to full competition rules. The concept and definition of the market is important for that subject.
Some economists divide to the market into two parts. These are; perfectly competitive market and imperfectly competitive market. I will explain to monopoly market type and oligopoly market type of imperfectly competitive market and I will touch upon some features of perfectly competitive market for understand differences.
One of the types of imperfect competition is monopoly markets. It is a kind of market which is far from perfect competition market. There is only one producer/seller for a product so the single business is the industry. Difficult to enter such a market and requires high cost. There are economic, social and political boundaries of these markets. For example, if a government wants to control, such as electricity, it can be create a monopoly over that industry.
Monopoly market gives to its owners some special rights and privileges for an asset or a natural resource. For example, in Saudi Arabia, the government has sole control over the oil industry. There is no fear of seller from any competing firms. Because of there is not another company that produces same goods or supply of same goods. Therefore monopoly firms move in independence about sale price.
CHARACTERISTIC OF MONOPOLY MARKET
The most important factor in the formation of monopolistic market is the supply of goods that cannot be easily substituted. °f there is substitution of goods in that market, monopolistic firm’s effectiveness will be reduced and it’s independence will be limited about price determination. For example a monopoly firm cannot determine high price for selling prices of lignite coal. Because of there are other types of coal and electrical energy in the market. That firm should take into account to indirect competition. The second factor the monopolistic firm has to think purchasing power of buyers. Because of if the firm determines higher selling price, it may not find any buyer.
I want to give example about monopoly of Turkey. Licorice root receiver is only monopoly administration in Turkey and it is called ” buyer monopoly”. There is only one seller in turkey about soda and food acids and it is called ” seller monopoly”.
Four sources of monopoly power;
If a business has natural resources, it will provide to possibility a monopoly for business. For example a hotel can gain monopoly power with a good beach and a perfect landscape. Some countries have natural monopolies which on the mines or agricultural products at the international level. Coffee, pineapple, oil, chromium are natural monopoly products in some countries.
Legal monopolies divided into two; private monopoly and a public monopoly. Examples of legal monopoly in turkey; raki and some spirits, rail transport, post office services, radio and TV services. These based on privileges given by law. Private enterprise can has legal monopolies. Patent rights are a form of legal monopoly. Patent give to a right to use for a person who invented a new property. Patent rights are protected by law and there are also international agreements on this subject.
Several big companies make a deal for eliminate to competition between them. This Collective monopoly usually develops in Germany. Cartels consist for remove to competition on price and sales conditions. Trusts develop at USA; Cartels project to legal existence, There is not legal presence for the members of trust. For example; all aircraft flying to form a cartel outside the socialist countries, Aircraft Company will receive the same wage but each aircraft company is dependent.
Firms can take advantage of an actual situation. For example, if the firm is the first company on arm of a business, it can be a power in that market for a long time.
There are only a few firms that make up an industry in an oligopoly market. It is a market type which has a small number of sellers and a lot of buyers. This select group of firms has control over the price like a monopoly. Oligopoly market has generally three, five or eight giant companies and their powers are equal to each other. There are a few giant companies in that market about important items. For example, copper, aluminum, ferrous metals-steel, automobiles, tractors, trucks, auto tires, petro-chemical and heavy industries have only three or five giant firms in their own markets.
There are two sellers and a lot of buyers in the market for a good, the name of market are duopoly market.
In oligopoly markets, number of vendors is not less than monopoly markets for example the cost routing of power weaker than monopoly markets. But this number is not too much; each one can affect the price level.
The company’s withdrawal from the market is important event in oligopoly market. It caused to rise prices. It affects to the total supply. The other hand is if a new firm enters the market, prices will fall and other firms will be disturbed from that issue.
There are a small number of firms in oligopoly market so a firm affects to other firms about some subjects. These subjects are production quantity, the quality of the goods, effort to increase about amount of sales, price policy. Each company has to follow other firm’s position. It likes gambling player. Some economists explain to oligopoly theory with game theory. The firms want to protect the certain price level and maintain price in oligopoly markets. There is a secret agreement among the firms about price.
Types of oligopoly market;
Homogenous oligopoly: If the goods of all the companies is similar nature in that market, it will be called ”homogenous oligopoly”. For example cement, steel and aluminum industries. Degrees of commitment to each other are very high in homogenous oligopoly. Ä±f a firm lower price, it effects to rival firm’s sales
Differentiated oligopoly: If the goods of companies is different from each other in that market, it will be called ”differentiated oligopoly”. For example, automobiles, machinery and building materials. Price changes create less impact on competitors. In short, if the degree of differentiation increases, interdependence between firms will be reduced
Full oligopoly; oligopolistic firms create a group and they try to maximize their profits. Dependence between firms is very strong
Partial oligopoly: That type of oligopoly is opposite to full oligopoly and dependence between firms is weak so companies don’t create a group.
PERFECTLY COMPETITIVE MARKET
Perfectly competitive market characters;
The buyers and sellers cannot influence to price alone in that market. In other words firms cannot apply to independent price policy under the perfect competition. Price is evident and companies have to accept it. This is shown with horizontal price line.
The conditions of perfect competition market are as follow;
There are a lot of sellers in that market who produce the same goods and there are a lot of buyers in that market who want to buy the same goods.
If a firm increases or decreases to its amount of sales, the price of goods won’t change too much. Because of there are many vendors in that market .In the other words, each company must accept as the market price.
The same situation applies to the buyers. There are many buyers in that market. The amount of the purchase decisions of buyers don’t influence to the price of the goods too much. That situation is called ” the assumption atomistic”.
The buyers and sellers easily enter to market and they can easily get out of the market. If the firms want, they can move to another industry or other business.
Produced or sold goods are homogeneous in perfectly competitive market. In the other words, there no difference between the same kind of goods about quality and features.
Both buyers and sellers have full knowledge of the market. This is called ”openness assumption”.
COMPARISON OF PERFECT COMPETITION MARKET AND MONOPOLY MARKET
In perfect competition market, firms make sales with lower prices than monopoly market. Because of the monopoly market’s equilibrium price is higher level for long-term.
In perfect competition market, firms make to more low-cost production but monopoly market’s production cost is higher than perfect competition.
The amount of production of perfect competition firms is more than monopolistic firms so their production is more and cheaper than monopoly market.
Idle capacity can be a big problem for monopolistic firms. There is extravagance of production resources in terms of society.
Monopolistic companies’ profits are excessive. It caused to inequalities in income distribution. It isn’t comport with ” social justice” principle.
Perfect competition’s demand curve is fully flexible, in other words it is horizontal price line. But monopoly market’s demand cure is same negatively sloped market demand curve.
If the marginal cost is equal to price, perfect competition market will be equilibrium on that point. But it is different for monopoly market. If marginal revenue is equal to the marginal cost, it will be equilibrium on that point.
AN EXAMPLE ABOUT OL°GOPOLY MARKET OF TURKEY
Information and communication sectors are developing lately in Turkey and it has exceeded to the limits of the country. That sector was more affected by the technological developments. More than ten years ago public groups have the telecommunications companies. That is called ” monopoly”. However, today this company isn’t only fixed telephone service.
Mobile and mobile phone, internet, cable TV, electronic commerce effects to it’s structure. All countries change their sectors and companies with that new economy.
Changes in the Telecommunications sectors;
Years 1980s; protected monopolies, stable demand, weak competition
Years 1990s; dynamic structure, retail services, regional competition
Years 2000s;competitive structure, international competition, these times are information age and mobile communication, provide to added-value services ( for example internet)
LIBERALIZATION, LEGAL AND ADMINISTRATIVE ARRANGEMENTS °N TELECOMMUNICATIONS MARKET OF TURKEY
Telecommunication sector creates the basic infrastructure of information society. This sector has economic and commercial value which is a strategic sector. That sector was under state monopoly in old-time. But technological, economic and social developments at the global level affected that structure. New telecommunication order targets to give that service in competitive environment.
Before 1990s, there was a monopoly market structure in telecommunication industry. Turkish Telecom Company had that sector with legal monopoly. In July of 1993, Turkish telecom and Turk cell, Telsim companies signed mobile phone system contract for share revenues. Both of the companies paid 500 million U.S. dollars for license fee. Turkish telecom had 67.1 percent of income in that sector, Turk cell and Telsim had 32.9 percent of income in that sector with that agreement. After Aria company entered the market. Turkish Telekom was privatized and Aycell Company of Turkish Telekom entered this competition. After a period of time, Aria and Aycell companies decided to unite and they created to ”Avea”. Telsim was sold to a new company and it has a new name that is ”Vodafone”.
Market and competition conditions of GSM operators in Turkey are oligopolistic market policies. There are 3 big companies in that sector. These are; Turk cell, Telsim and Vodafone. If one of them has a new price policy, it will be effects to the other companies. In this case, other firms can decide to lower price, they can make some advertising and sales companies or promotion campaign. This sector in Turkey has all the features of the oligopoly market.
Conditions of imperfect competition are an obstacle in front of the development. The market price is in the hands of a person in the monopoly market. A few people share to the market in oligopoly market.
There are many buyers and sellers in perfect competition environment. Price doesn’t belong to a particular group. The competition provides to improve of countries. Turkey is working for provide to perfectly competitive market conditions in its all sector.
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