FREE ESSAY ON MONOPOLY

MONOPOLY

The Monopoly
a) Using Australian examples describe the characteristics of the two of the following
forms: Monopoly Oligopoly
The main characteristics of an oligopoly are:
? The market is dominated by only a few companies, which are relatively large.
? The production of identical products which are similar.
? There are significant barriers to entry.
? The interdependence of production decisions within the market.
An Oligopoly market exists in which a small number of firms dominate the supply to an
entire market. Each firm producers a very similar product. In Australia the oligopoly is
the major market form. It is because Australia is so small market located far from
overseas markets and this thus requires producers to be larger, so they are more
competitive. There are hundreds of examples of oligopolistic industries, e.g. cars
(Holden), breakfast cereals (Kellogs) 
This market form does not only depend on the larger producers, but the recognition of
their interdependence, the action of one producer will affect the actions of others and
each oligopoly firm watches their rivals closely. Oligopolies compete fiercely for market
share, therefore the competition for existing or new consumes is intense, as each
producers products are very similar. As a result oligopolists have little influence over
price. For example Shells petrol is very similar to Mobil petrol, therefore these two
companies watch each other closely.
Oligopoly firms attempt to make their products different in the eyes of consumers. This
can be achieved in many different ways. Firstly by providing quality improvements in
goods or services such as electrical sound equipment, secondly by different packaging or
wrapping, thirdly by bonus offers or prizes on purchase, for example Just Jeans offering
free sunglasses. The more product differentiation among oligopoly firms, there is a more
chance of each firm has being independent from its rivals when setting price or output. 
It is hard for new firms with a small market share to enter the oligopoly market and
produce enough to make the product cheap for consumers to buy. The small amount of large
firms can often produce large amounts of quantity to provide for all consumers to
purchase. It is difficult for new firms to win market shares form existing producers,
particularly if those firms have large advertising budgets, licenses, design patents or
restrict access to raw materials on one way or another. Oligopoly is a market structure,
which is especially vulnerable to restrictive trade practices. 
The main characteristics of a pure monopoly are:
? Only one seller within the market.
? The goods produced have no close substitutes. 
? There are extreme barriers to entry.
? Complete control over price. 
A monopoly is an industry in which there is one supplier of a good or service that has no
close substitute and in which there is a barrier preventing new firms to enter. The
supply of water and gas are local monopolies, while Australia Post, B.H.P and C.S.R. are
examples of national monopolies. As there is only on supplier, the firms can chose where
on the demand curve the industry will operate. They can either determine the price or the
quantity traded. Either they can sell less at a higher price or sell more at a lower
price; therefore their decision is based on maximizing their total profits.
The key feature of a monopoly is the existence of barriers preventing the entry of new
firms. It is once the firm has entry the market system that is losses the advantage of
monopoly control. Some barriers to entry may include; control over vital raw materials,
tariff protection from importers, protective government legislation, temporarily low
price to force out competition and large research and development budgets to help
monopolists maintain their technological advantages over potential rivals. As there is no
existence of competition, advertising is mainly focused on public relations or
sponsorship of major sports events. 
b) How effectively do the two markets forms that you described in part a meet the
criteria for a successful market? 
A market system exists when producers and consumers interact with one another. For a
successful market system to exist the following criteria needs to be meet: does the
market? Deliver lower prices, provide greater choice, encourage improvements in the
quality of the goods and services traded, encourage the implementation of new technology
and foster efficiency in resources allocation and use. 
Although there is some price competition in an oligopoly market system the price is still
high, as firms compete with one another. But the choice in this market system is better
than in a monopoly market system where there is only one product. In a monopoly system
like the oligopoly the price tends to be high, as there is only one producer. 
Due to in a monopoly being only one seller, there is no close substitute, so there fore
there is no pressure to improve the product. Unlike in an oligopoly market system the
quality of the product is good, as firms compete with one another and try to improve
their products. 
New technology plays an important part in both market systems. In an oligopoly there is
strong incentive to produce new technology to differentiate each firms products. As in a
monopoly market system innovation is needed to maintain a monopoly. 
It can be said that an oligopoly market system is more effective than a monopoly markets
system, but only at an economic level otherwise it wasteful on advertising. Otherwise
monopoly is ineffective to no competition. 
In other terms, there is no market system, which fully satisfy the market system
criteria. Both of these market systems lack in some features to fully satisfy the
criteria for a successful market system. While the oligopoly provides better quality
products, it has high prices. While the monopoly has only one product it also has high
prices. For a successful market system, both of these market systems need to deliver
their prices low.