* There is a single seller and large numbers of buyers that sell products that have no close substitutes. The entry and exit barriers are also high.
* No close substitutes – Monopolies firm would sell products in which there are no close substitutes.
* Restriction of entry of new firms.
* Advertising: Advertising in a monopoly market depends on the products sold. Advantages and disadvantages:
1. Stability of price
* In a monopoly market the prices are most of the times stable. This happens because there is only one firm involved in the market that sets the prices if and when it feels like. In other types of market structures prices are not stable and tend to be elastic as a result of the competition that exists but this isn’t the case in a monopoly market as there is little or no competition at all.
2. Source of revenue for the government
* The government gets revenue in form of taxation from monopoly firms.
3. Massive profits
* Due to the absence of competitors which leads to high number of sales monopoly firms tend to receive super profits from their operations. The massive profits realized may be used in such things as launching other products, carrying out research and development among many other things that may be beneficial to the firm. 4. Monopoly firms offer some services effectively and efficiently.
1. Exploitation of consumers
* A monopoly market is best known for consumer exploitation. There are indeed no competing products and as a result the consumer gets a raw deal in terms of quantity, quality and pricing. The firm may find it easy to produce inferior or substandard goods if it wishes because t the end of the day they know very well that the items will be purchased as there are no competing products for the already available market.
2. Dissatisfied consumers
* Consumers get a raw deal from a monopoly market because quality will be compromised. Therefore it is not a wonder to see very dissatisfied consumers who often complain about the firm’s products
3. Higher prices
* No competition in the market means absence of such things as price wars that may have benefited the consumer and as a result of this monopoly firms tend to charge higher prices on goods and services hence inconveniencing the buyer.
4. Price discrimination
* Monopoly firms are also sometimes known for practicing price discrimination where they charge different prices on the same product for different consumers.
5. Inferior goods and services
* Competition is minimal or totally absent and as such the monopoly firm may willingly produce inferior goods and services because after all they know the goods will not fail to sell.
* Having only a limited number of companies controlling a large proportion of a particular industry reduces the likelihood of one of the members making unjustified price increases. Should such an increase not be adopted by the remaining companies, the first supplier will simply lose its share of the limited market, as consumers will turn to the other providers for the identical product at the lower rate. Although the profit margin of the other companies may be slightly smaller, they will, of course, benefit from the subsequent increase in demand. Disadvantages
* In a normal market, it is supply and demand that mostly affect price. Should a consumer find a similar product offered by another provider at a cheaper price, he will make his purchase from that other provider. Suppliers will not, therefore, over-inflate their prices because they will simply lose customers. In an oligopoly, there is little choice for consumers and this will negate any influence they may have had over price control. By the very nature of an oligopoly, providers in an industry with limited members are able between them to dictate the price of their product, as consumers are unable to find alternatives or substitutes elsewhere. Since in many countries collusion or conspiracy between companies to inflate prices is illegal, members of an oligopoly may follow signals given by its industry leader as to any imminent changes it proposes to implement.
1. Resources are allocated in the most efficient way to meet market demand and maximise consumer satisfaction. This means that market mechanism works better. 2. It is the cheapest way of using the factors of production we have. Which says that we are at the lowest part of the AC curve? 3. There is no cost of advertising, selling, marketing, or motions. These are often a form of waste to society as a whole, though beneficial for individual firms. 4. Rapid change is possible to meet new consumer demands – it is very flexible. The interests of producers are the same as for consumers. 5. Freedom to choose exists.
6. It avoids all the wastes of monopoly.
7. It prevents the emergence of a few rich and powerful people .There are a lot of firms, all small, so that no major powerful personality can rise and dominate others.
1. It produces what is demanded under the given distribution of income. We can imagine a scenario with a very few rich people with pet dogs or cats which dine extremely well on chicken and the like, while the masses starve.
2. Spill overs and externalities can exist. These are costs caused to others, e.g. the disposal of nuclear waste or toxic chemicals by dumping them in streams. 3. No economies of scale possible – all the firms are too small. 4. Perfect competition is consistent with a limited choice of range of goods; monopolistic competition may have a much wider range. An example is motorcars – there are an awful lot of different models and competition is much less than perfect. 5. Little or no research and development is possible because there are no funds for it. Under perfect competition there are no surplus profits (in the long run they are whittled away!) R&D is possible under monopoly because of the surplus profits available.
1. There are no significant barriers to entry; therefore markets are relatively contestable. 2. Differentiation creates diversity, choice and utility. For example, a typical high street in any town will have a number of different restaurants from which to choose. 3. The market is more efficient than monopoly but less efficient than perfect competition – less allocatively and less productively efficient. However, they may be dynamically efficient, innovative in terms of new production processes or new products. For example, retailers often constantly have to develop new ways to attract and retain local custom. Disadvantages
Some differentiation does not create utility but generates unnecessary waste, such as excess packaging. Advertising may also be considered wasteful, though most is informative rather than persuasive. As the diagram illustrates, assuming profit maximisation, there is allocative inefficiency in both the long and short run. This is because price is above marginal cost in both cases. In the long run the firm is less allocatively inefficient, but it is still inefficient.
http://knownai.hubpages.com/hub/Advantages-And-Disadvantages-Of-A-Monopoly-Market http://www.ehow.com/info_8181651_advantages-disadvantages-oligopoly.html http://wiki.answers.com/Q/What_are_the_differences_between_perfect_competitve
Some of the most important work in the development of economic theory is associated with the study of market structure. In essence, most markets are two-sided. For example, product markets connect tens of thousands of product brands to tens of millions of consumers; marriage markets couple the single men and women who would otherwise suffer from a lonely heart; and labour markets link the job candidates to their preferred employers and positions. Apart from the two-sidedness, we have explored another important common aspect of these market structures, i.e. interconnection/competition of the segments within one side of the market. Under this common thread, the three essays in this thesis are freshly formulated in a loosely related manner, covering topics in three different areas. Chapter 2 is motivated by strategic transitions of many marketplaces (e.g. Amazon.com). From the perspective of a platform owner, when it owns part of the business on one side of the market, there is no straightforward answer as to whether having the rest of business owned by others is advantageous or not. The argument is that, on the one hand, the platform welcomes more third-party business as it boosts revenue in terms of membership fees; on the other hand the business owned by the platform dislikes the incoming competitors whose participation drives down pro t margins. We propose a novel framework in this chapter to explore the trade-off between the two. Here, the intermediary can decide to be either a "merchant" or a "two-sided platform", or a hybrid one in between. Our analysis shows that in hybrid mode the platform extracts all the surplus from the producers of the merchandised brands, and the merchandised brands always charge a price premium compared to the directly retailed ones. We also show that as the platform absorbs an existing directly retailed brand into the self-brand portfolio, the equilibrium prices of both brand types are increased. We find that only the directly retailed brands dominate the market when the platform s capacity is relatively small; and both brand types coexist in the marketplace when the capacity is relatively large. Furthermore, we find a backward bending proportion plus a vertical proportion of the "contract curve" in comparative statics. That is, the self-brand portfolio always expands while the third-party-brand portfolio shrinks until it reaches a certain level, when the platform increases its capacity. It helps us to gain some ideas on the dynamics of brand portfolio management for the platform. Lastly, taking into account of indirect network effect which is the common feature in the two-sided market, it is shown that the platform is better o¤ when consumers have positive expected surplus. Chapter 3 is much motivated by the Chinese experience. China has witnessed the largest rural to urban labour ow (among which the majority are male) in the world s history over the last three decades. We propose an idea that the grand migration can also be attributed to the unbalanced sex ratio between rural and urban areas. This chapter develops a two-sided matching model of two linked marriage markets with homogeneous agents, non-transferable utility and search friction. We extend the one-market model of the previous literature into a two-market one, allowing the agents to migrate between the markets at a fixed cost. The analysis focuses on the unmatched as well as the migrating population, which is induced by the different sex ratios in the two geographically isolated marriage markets. We find that imperfections in the matching technology leads to the enlarged gap of sex ratio of the unmatched population compared to that of the unbalanced inflows. We are interested in the question of how the migrating costs affect the migration between rural and urban areas, and under what conditions a subsidy covering migrating costs might benefit a party in the marriage markets. We characterise the equilibrium set in the parameter space of migrating costs, and find that a full subsidy of migrating costs does not necessarily benefit those who receive it but always benefits the opposite sex, if they are the short sides of both markets. Chapter 4 explains the migration of labour force from a different angle. Here, the migration is of workers to jobs. Motivated by the distinction of public and private sector, we consider a spatial oligopsony model in which forms (two co-locating small firms with recruiting capacity constraints and a large firm without such limit) are competing for workers along a "strip" market. The capacity issue that is extensively discussed in the Chapter 2 again plays an important role in this model, though in a very different context. It is shown that the recruiting capacity affects the intra-group competition and hence the inter-group competition in wage- posting strategies. Additionally, we show that, as recruiting limits expand, the expected wages offered by the small firms increase while the wage offered by the big firm decreases, which helps to explain the recent trend of the wage disparity between public and private jobs. We also characterise the equilibrium wages and the size (direction) of the migration in the three-stage game (i.e. the workers decide whether to relocate in the first stage, then the big firm decides its wage offer, and lastly, the two co-locating firms simultaneous set wages), which helps us to understand better the inter-sector mobility in a changing environment of economy. We investigate the issues of interconnection and competition in three different markets. It is always of interest for a researcher of economics to have some ideas on the same issue from different perspectives. Remember that whilst this is a collection of essays on economic theory, it is nonetheless compared to empirical observation. And it will surely serve as a starting point for the author to further the research on market structure.