What are examples of a monopoly competitive market

Monopoly competition

This article was completed and corrected through the review process. The processor has submitted the article for evaluation. --Jenny Moser 01:02, Apr 28, 2008 (CEST)
"monopoly competition" [1]
  • The term monopoly competition denotes a special form of oligopoly. It is a market that few companies are in. Each of these providers is large enough itself to be able to influence prices. Not to be underestimated, however, is the relationship between a supplier's strategic market measures and the reactions of the competitor (s). Due to product differentiation, the providers act largely independently of one another, but the substitutability of the products should not be underestimated in terms of user decisions.

Alternative Definitions of Monopolistic Competition

  • "A market where companies can freely enter and each produce their own brand or version of a differentiated product."[2]
  • "The market model of monopolistic competition is often found in reality. It represents that Polypol in the imperfect market (polipolitical competition), on which many suppliers and many buyers act independently of each other .... " [3]

Demarcation

As mentioned, the model of monopolistic competition is a special case and thus a mixture of different market forms and models. These include monopoly and oligopoly, among others. Even competition or competitive behavior as such cannot be neglected due to the development of diverse strategies and theories. Some conceptual definitions are therefore necessary.

monopoly

--> Greek right to sole trade and sale; Privilege, sole claim[4] (Sole supplier)

The monopoly is a market constellation in which the entire supply, and more rarely the entire demand, is united in one hand. As the price fixer, the monopolist can determine at what price he would like to offer the good on the market. In accordance with the set monopoly price, the consumers react as a quantity adjustor via the requested quantity. The price-sales function is the same as the total demand function. In practice, a pure monopoly is seldom encountered.

Oligopoly

"Market dominance by a few large companies"[5]

An oligopoly is characterized by the presence of a few suppliers for a certain type of goods who face a large number of buyers. However, none of these providers has an absolute monopoly. This means that the internal economies of scale create the market structure.[6] The dependency between the companies is based on the assumption that strategic market measures always trigger a backlash. Consumers as well as competitors have to be taken into account, particularly in the pricing policy applied. Entry into the market is made more difficult for new providers due to various obstacles. Ties to patents and licenses, to buyers and suppliers and also the financial factor (advertising, quality competitions) are just a few examples.

  • Examples in the German economy:
-> Oil industry
-> automotive industry
-> electrical industry

competition

-> competition(lat. race) [7]
-> rivalry

Competition or competition describes the performance struggle of the economic units for the desired position as a whole. It is about the relationship between suppliers or consumers and between suppliers and consumers. Essentially, the interplay of action and reaction is important as a dynamic market process. Every provider strives to attract more demand by means of market strategy measures and at the same time to sell the products at the "best" price. Such behavior always causes countermeasures on the part of competitors. This constant pressure to increase performance is advantageous for users, as they benefit from greater selection options, price reductions, quality improvements, etc.

Distribution function
Control function
Incentive function

Classification of monopoly competition

Basics

Monopolistic competition is an expression coined by E. Chamberlin for the market form of imperfect competition (monopolistic competition). In an imperfect market, some participants confront each other, but each has a monopoly, albeit a weak one. Within certain limits, a provider can, for example, change its price like a monopoly.

  • There are two approaches in the literature:
1. Chamberlin's tangent solution
According to this approach, each provider determines his profit maximum within the framework of Cournot's theorem. This works as long as the market entry is still free and profits are made. The offer of the new providers shifts the price-sales function of the previous providers towards the origin. If in the end it is no longer possible to generate a profit, the average cost curve affects the price-sales function.
2. Gutenberg's solution
Here, too, the profit maximum is determined according to Cournot's theorem. In contrast to the tangent solution, Gutenberg assumes that the individual price-sales functions are kinked twice due to preferences, i.e. a monopoly area in the polypolistic price-sales function. [8]

The model

Characteristics

Product differentiation means that the products are similar but still have noticeable differences. One could say that these goods are imperfect substitutes. This means that the products can be used for the same purposes, but they still have different application options. In some cases, this difference is only recognizable to the customer, who consumes through quality and price differences as well as brand loyalty. Example: Kellog's cornflakes and a no-name product have the same purpose, but must be distinguished by the above-mentioned characteristics.

As far as the price is concerned, it is assumed that the companies behave ´like´ monopolists. The greater the degree of product differentiation, the more independent the price can be. Furthermore, you are pricing policy through special customer programs, such as student or senior rates, discount promotions and also a general price classification.

Market barriers prevent new companies from entering the market. These barriers can have different forms, such as legal regulations, technical peculiarities, the existing number of providers and marketing strategies.

Basic assumptions
The higher the demand for a product and the higher the price of the competitors, the greater the sales. As a result, one can assume that sales will decrease as the number of competitors increases. Assuming that all companies in the industry are symmetrical, the result is an identical demand and cost function for all companies.

Market equilibrium[9]


The demand function: [10]
The cost function: [11]
The price function:

  • Q -> sales of the company
  • S. -> total sales in the sector
  • P. -> price of the company
  • -> Average price of the customers
  • n -> Number of companies in the branch
  • b -> Constant for paragraph changes
  • AC -> average costs
  • F. -> fixed costs
  • E. -> balance
1) Number of companies and average costs:
The cost function says that the average cost increase as the number of competitors increases, as the individual company produces and sells less. As a result, the -Curve rising.
2) Number of ventures and the price
With an increasing number of companies the price goes down that each individual provider can request. This results in a falling -Curve.
3) ratio of PP and CC
To the left of point E, the industry is making a profit, which attracts new providers. If the market is to the right of point E, losses are recorded and the branch is emigrated.
4) Number of companies in equilibrium
Point E represents the long-term equilibrium. This is where they intersect Curve and the -Curve. In the above figure, this is in 2 and 2/2. At this point the industry does not make any gains or losses, since the average cost and the price are the same.

Restrictions

The model of monopoly competition only applies to a few sectors. The assumption that every company behaves as a "real" monopoly is unsustainable in reality. Rather, the individual providers are aware of their influence on the behavior of their competitors. In the model of monopoly competition, two typical behavioral patterns of olidopoly are excluded. On the one hand, the coordinated behavior (collusion), which is unfavorable for the consumer, since the price here is kept above the calculated profit level. The coordination can take place through explicit contracts or tacit coordination strategies. The second possibility is the strategic behavior that creates market barriers by setting up additional capacities. These targeted decisions reduce profits, but they influence the behavior of the competition and prevent potential rivals from entering the market. A model is always limited to the essential factors in order to represent reality in a simplified manner. Here, too, simplification is of great importance for understanding, especially with regard to foreign trade and in the context of the globalization of markets.

Monopoly competition and foreign trade

International trade enlarges the market, from the national market to the world market. Due to the "new" market size, the limitation of the previous production volume is no longer applicable. In addition to the quantity produced and sold, the variety of goods that can be offered to consumers is also expanding. In a bigger market there is more space for a higher number of ventures and the scope of the price changes. While there are no significant differences in resources or technology between companies, there are mutual benefits. These can arise within the scope of the opportunity costs, since one country may have lower production costs for a product than another. Further advantages of large markets are a larger number of companies on the supply side, which can also achieve higher sales. On the consumer side, lower prices and a greater variety of products are significant.

Effects of Market Expansion [12]

From this formula it can be seen that with increasing total sales (S) and the same number of companies (n), the average costs decrease. A comparison of two markets with different total sales (S) shows that the CC curve of the larger market is below that of the smaller market. This means that more providers can act on the market so that the variety of products increases and the price decreases at the same time.
Since the formula for the price does not take total sales into account, the PP curve does not shift due to a market expansion.

By expanding the market, companies have the opportunity to increase production while lowering average costs. This becomes clear through the downward shift of the CC curve, from CC1 according to CC2. The result is an increasing number of companies with simultaneously falling prices. The situation in point 1, with little choice of products and relatively high prices, is worse for consumers than the situation in point 2, with lower prices and more choice.

Examples

The automotive industry in Europe[13] is very similar to the market model of monopoly competition. In addition to the variety of manufacturers, such as Ford, General Motors, Volkswagen, Renault, Peugeot, Fiat, etc., there is also a large number of different vehicle models and classes. Here every customer can equip himself according to his wishes and ideas. The product differentiation in this market is not only visually recognizable.

There is also a relationship that comes close to monopolistic competition in the following sectors:

  • Toothpaste market
  • Detergent market
  • Coffee market
  • retail trade

swell

literature

  • Gabler Economic Lexicon.- Paperback cassette with 6 vol., 12th revised. and exp. Edition, Wiesbaden: Gabler.
  • Seidel / Temmen (2000): Basics of economics, 18th revised Edition, Bad Homburg in front of the height: Gehlen.
  • Prof. Dr. Th. Sauer: international economic Relations, FH Jena - FB BW - VWL III, Chapter 6.
  • Pindyck / Rubinfeld (2005): Microeconomics, 6th edition, Munich: Pearson.
  • Krugman / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson.
  • Erich and Hildegard Bulitta (1993): The Kruger Lexicon of Synonyms, Dortmund: Fischer.
  • Duden (2000): The German spelling, Vol. 1, 22. revised. and exp. Edition, Mannheim: Duden.
  • Bertelsmann Lexicon (1992): The new pocket dictionary, Gütersloh: Bertelsmann.
  • Joseph E. Stiglitz (1999): Economics, 2nd edition, Munich: Oldenburg Verlag.

Web links

Individual evidence

  1. ^ Pindyck / Rubinfeld (2005): Microeconomics, 6th edition, Munich: Pearson, p.570ff. "
  2. ^ Pindyck / Rubinfeld (2005): Microeconomics, 6th edition, Munich: Pearson, p. 570.
  3. ↑ Seidel / Temmen (2000): Basics of economics, 18th revised Edition, Bad Homburg vor der Höhe: Gehlen, p. 126.
  4. ↑ Duden (2000): The German spelling, Vol. 1, 22nd rework. and exp. Edition, Mannheim: Duden, p.663.
  5. ↑ Duden (2000): The German spelling, Vol. 1, 22. revised. and exp. Edition, Mannheim: Duden, p.708.
  6. ↑ Prof. Dr. Th. Sauer: international economic Relations, FH Jena - FB BW - VWL III, Chapter 6, Slide 15.
  7. ↑ Bertelsmann Lexicon (1992): The new pocket dictionary, Gütersloh: Bertelsmann, Volume 8, p. 244.
  8. Gabler Economic Lexicon.- Paperback cassette with 6 vol., 12th revised. and exp. Edition, Wiesbaden: Gabler, Volume 4, L-P, pp. 471 and 472.
  9. ^ Krugman / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson, p. 170.
  10. ^ Krugman / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson, p. 168.
  11. ^ Krugman / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson, p. 169.
  12. ↑ Krugmann / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson, p. 174.
  13. ^ Krugman / Obstfeld (2006): international economy, 7th act. Edition, Munich: Pearson, p. 167 ff.

Links to related topics