chap.6-types-of-competition

TypesofCompetition►Differentdegreesofenterprices’competitionexistundermarketeconomy.►Basisforclassification:CompanynumbersinvolvedintheindustryThescaleofthecompaniesProductproduceddifferentiationornotTypeofcompetitionperfectcompetitionimperfectcompetitionmonopolisticcompetitionmonopolyoligopolyPerfectCompetition►Definition:Perfectcompetitionmeanscompetitioninwhichmarketforcesoperatewithoutanyoutsideinterferencealsomaybecalledpurecompetition.►Features:Thesellersarepricetakersratherthanpricemakers.Therearealargenumberofcompetingcompanies.Thereisnothingtokeepmorecompaniesfromenteringthemarketandfirmscanleaveimmediatelywithnodelaywhatsoever.Allfirmsproducetheexactsameproducts.Everyonewouldhaveinstantaneousandcompleteinformationaboutallfirms.Allfirmshavemakeprofitastheironeandonlygoal.MonopolisticCompetition►Definition:Monopolisticcompetitionisamarketstructureinwhichmanycompaniesoperateindependentofeachother(althoughnotsomanyastobethenumberapproachinginfinityspecifiedbyperfectcompetition)inanindustry.►Features:1.Thecompetingcompaniesinmonopolisticcompetitionarenotsomuchpricetakersaspricesettersandthusthedemandcurveissloped,notsetconstantatthemarketprice.2.Therelativelysmallsizeofthesefirmsalsomakesiteasyforanyfirmtoenterorleavetheindustry.3.Inmonopolisticcompetition,eachfirmoffersadifferenttypeofproduct,sofirmsattempttodifferentiatetheirproductsfromthoseofcompetitors.►MethodsofProductDifferentiation:CharateristicsAdvertisingPackagingBrandnamesModelorDesignchangesservicesOligopoly►Definition:Anoligopolyisamarketdominatedbyafewlargesuppliers.Thedegreeofmarketconcentrationisveryhigh(i.e.alarge%ofthemarketistakenupbytheleadingfirms).►Features:Afewfirmssellsimilarproduct.Eachfirmproducesbrandedproducts.Likelytobesignificantentrybarriersintothemarketinthelongrunwhichallowsfirmstomakesupernormalprofits.Interdependencebetweencompetingfirms---Businesseshavetotakeintoaccountlikelyreactionsofrivalstoanychangeinpriceandoutput.Dominantfirminthemarketmayexperiencepriceleadership.Thefirmswithlowermarketsharesmaysimplyfollowthepricingchangespromptedbythedominantfirms.Monopoly►Definition:Amonopolyisamarketstructureinwhichthereisonlyonesinglecompanythatisintheindustry.monopolypuremonopolyregulatedmonopoly►Features:1.Sincethelawsprohibitattemptstomonopolizedmarkets,nearlyallthemonopoliesinexistenceareregulatedmonopolies,suchasthepublicutilities,firmssellingelectricity,naturalgas,andtelephoneserviceareusuallyregulatedbyagenciesofthestategovernment.2.Theseagenciesadministermanyaspectsoftheregulatedmonopoly,includingpricingandprofits.3.Inapuremonopoly,afirmwouldhavesubstantialcontroloverpricing,butinaregulatedmonopoly,pricingisasubjecttorulesimposedbytheregulatorybody.4.Therearefewdirectlycompetitiveproductsinaregulatedmonopoly.5.Andentryintotheindustryisrestrictedbythegovernment.