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monopolies, oligopolies, monopolistic competition and perfect competition
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| Words: 5000 | Submitted: 22-Mar-2006
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DescriptionFor this assignment I will be looking at monopolies, oligopolies, monopolistic competition, perfect competition and I will also discuss the affect on and the importance of international trade.
For this assignment I will be looking at monopoly’s’, oligopoly’s, monopolistic competition, perfect competition and I will also discuss the affect on and the importance of international trade.
A monopoly means a situation where there is only one seller of a commodity. This is the case in the United Kingdom with Tate and Lyle, who have a virtual monopoly of cane sugar, and Joseph Lucas with an almost complete monopoly of certain electrical components for cars. Other monopoly’s include the following:
• Post Office
• BT – they own all landlines in the UK (network)
• Network Rail – own Rail Network
• Thames Water - Within the Swindon area as there are no other suppliers that supply water to the area.
Legally speaking, an organisation may be treated as a monopoly under the Fair Trading Act 1973 if it has more than 25 percent of the market.
This is a situation when there are only a few sellers of a commodity. There are several industries in the United Kingdom dominated by a few large firms e.g. the production of detergent is almost entirely between Procter and Gamble and Unilever. In some case these firms might be described as monopolists rather than oligopolists. Oligopolists might produce virtually identical products and compete with one another through prices. It is more common, however, for them to compete through advertising and product differentiation. In the case of the detergents, for example, although the products are basically similar, there is a proliferation of brands and heavy advertising but very little price competition.
This is a single item that has many suppliers. When there are a large number of sellers producing a similar but differentiated product, then a state of monopolistic competition is to arise. This might be the case in the supply of shirts for example, where essentially similar items are supplied by many different firms at widely different prices and with a lot of product differentiation by the way of colour, style and materials. The reason it is called a monopolistic competition is because due to imperfections in the market, each organisation has a small degree of monopoly power. If for example Sonneti shirts can convince the public that there shirts are better than those of their competitors, then they have, as it were, created a small monopoly for their own product. The branding of goods is an attempt to break the chain of institution by which one commodity can be substituted for another. When a consumer goes into a shop and asks by brand name for a bar of chocolate, a shirt or a tub of ice cream, then the manufacturers have succeeded in their designs and may be able to reap the award of their monopoly.
A planned economy has a monopolistic economy so there is no choice and the quality of goods are not that good where as the free market would provide wider choice with all different types of quality.
For a state of perfect competition to exist in an industry the following conditions have to exist.
1. A large number of buyers and sellers of the commodity, so that no one firm can affect the market price through its own actions.
2. Freedom to entry and exit to the market for both buyers and sellers. The importance of this condition to theory cannot be stressed too highly.
3. Homogeneity of product i.e. all goods being sold have to be identical.
4. Perfect knowledge of the market part of both of the buyers and sellers.
5. It must be possible to buy or sell any amount of the commodity at the market price.
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