Research Paper on Market Structures: Perfect and Monopolistic Competition

Introduction

In any ordinary market, they exist different types of sellers and buyers, and this is what makes the economy competitive hence coming up with different market structures to be able to meet their market demands. However, the various market structures do exist, and the perfect company decides to utilize either two or one types of the market to outdo the rest in terms of profits margin. All of the market structures comprise of the company and characteristics of the market and how the government and the society approach different styles to serve the customers. Many of the organizations choose to operate under various market conditions, and they all have the motive of maximizing their profits through their levels of output. Hence, they tend to behave differently or similarly according to their designed market structure. However, most of the characteristics and behaviors of different markets can be analyzed following the market conditions and nature.

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Goods and Services

In perfect competition market structures, numerous sellers in the industry are in a position of selling similar products and services which are created or produced through the standardized approach, and each company has in-depth knowledge concerning market and price. Through the fact that goods and services of perfect competition, they can create a phenomenon known as a perfectly competitive market since they all meet the same requirements to meet the customers' needs (Wang, Yong-Bo and Jin-Ray 128). However, on the other hand, monopolistic competition is a type of market structure referred by many individuals as imperfect market structures (Dhingra, Swati and John 197). The reason behind the incomplete market structure is because the market niche comprises many sellers who sell similar goods, which are not identical products meaning most of the goods and services offered are substitutes of each other with other differences.

Price Determination of Monopolistic and Perfect Competition

Different enterprises or businesses mostly determine the price of products and services in the monopolistic competition market type in the market, and each industry is allowed to sell products at their best prices. Contrary to monopolistic competition perfect competition has the cost of their goods and services to be influenced by the forces of demand and supply which make the firms in this category to sell their products at the same price and the only way to win customers is through your advertisement and unique selling strategy different from your competitors (Bertoletti, Paolo and Federico 1226). However, in the monopolistic competition, the dominant company can have a ripple effect on the market by controlling the price of the goods and services without being influenced by other companies.

Entry and Exit Barriers

In the perfect competition market niche, there is free movement of in and out of the market depending on the company's decisions because it is not difficult, and that is why most of the companies when they shut down they can still rebuild themselves and come back in operation without any expenses (Lennartz 61). Unlike perfect competition in monopolistic competition, there is no smooth entry or exit of the firms in the market. Also, the companies fear to enter into the monopolistic company because there is already an existing dominant company that controls the price of the goods and services in the region. On the contrary, the dominating giants of the market find it hard to exit the market because they are enjoying more profit margins when compared to other businesses in the location. Another reason as to why firms find it difficult to enter and exit in the monopolistic competition structure is because the existing company already has substantial market share, and that is why the willing companies willing to enter the market have to be dominated by the giant market holders. In monopolistic competition, the market is comprised of one of the biggest sellers and this leaves clients with no other option of acquiring their products and services.

The Slope of the Demand Curve

In perfect competition, there are so many companies that survive with the general operation of selling similar products at the same prices, and this makes the demand curve to be perfectly elastic. The market mostly determines the cost of the products and services in perfect competition scenario and the other sellers are left with no other choice but to operate at that particular agreed price which makes their average revenue (AR) and marginal revenue (MR) to be at the same level or equal Wang, Yong-Bo and Jin-Ray 132). However, the curve in monopolistic competition scenario the curve is not identical, and that is why the average revenue (AR) is slightly higher than the marginal revenue (MR) which means that any business that wishes to increases its sales volume they have to lower their goods and services price (Dhingra, Swati and John 206). Besides the slope of the demand curve of the perfect competition structure is horizontal, which portrays the perfectly elastic demand, which means that any big or little change in the price of products and services will have an immense impact on the number of goods and services demanded in the region. However, the curve in monopolistic competition scenario is said to be downward, which shows it operates on elastic demand, meaning that any change made to the prices of products or services then brings relative impacts to the quantity.

Examples of Perfect and Monopolistic Market Structures

Online shopping, agriculture, and foreign exchange are examples of complete competition market structures. For instance, in agriculture, some so many farmers produce carrots, grain, and potatoes; hence these products are similar in everything, and the market demand determines their prices. Also, in foreign exchange, the traders are not in a position to alter the market price, and this makes the market entry to be free and straightforward.

On the other, we have hotels, car washes, dry cleaners, and coffee shops, which are real-world examples of monopolistic competition market scenario. For instance, coffee shops might be any in a specific region, but all offer different prices according to their prices despite the goods being the same. The reasons why prices are different are because there might be one dominant coffee shop in the market that sets a specific amount and controls the demand of the market without competition. Also, hotels can be forced to operate under the set price of the dominant hotels, for example, a better hotel with better standards might offer a lower price in the market of higher because it is the people favorite in that particular setting.

Advantages over Each Other Market Structure

However, most economists believe that monopolists can make long-run economic benefits than perfect competition structure companies since they dominate and control the market share in large percentages. For a company to be monopoly first, it has to pass through the perfect competition stage and brand itself as the dominant business in the niche of operation. Also, the monopolists have the advantage of controlling market prices and which means that they can decide to reduce their units of products but still charge higher rates and sell them in the market in simple ways (Dhingra, Swati, and John 219). Last but not least, in monopolistic competition, the firms have a more magnificent room for their growth and expansion since they make a super-normal profit compared to other companies. However, there is also another advantage of perfect competition market structure, which makes it unique is the free option of entrance and exit without any difficulties. However, no company wants to continue staying at the same place for decades; hence they end up adopting monopolistic.

Conclusion

In conclusion, it is upon every business to do market research before adopting any type of market structure to use in operation. Also, external business consultants should offer the best advice to the medium and small businesses on how to survive under different types of market structures. For instance, if the market wants to become monopolistic, they have to gain the knowledge related to producing unique products that substitute their competitors and make sure they have the most significant market share. On the other hand, if firms are comfortably enjoying the average profit like anyone else and have no visions of growing in the future, they should continue to exercise the perfect competition market style.

Works Cited

Bertoletti, Paolo, and Federico Etro. "Monopolistic competition when income matters." The Economic Journal 127.603 (2017): 1217-1243.

Dhingra, Swati, and John Morrow. "Monopolistic competition and optimum product diversity under firm heterogeneity." Journal of Political Economy 127.1 (2019): 196-232.

Lennartz, Christian. "Market structures of rental housing: Conceptualising perfect competition in mixed local rental markets." International Journal of Housing Policy 14.1 (2014): 56-78.

Wang, Yong-Bo, and Jin-Ray Lu. "A supply-lock competitive market for investable products." Asian Development Policy Review 4.4 (2016): 127-133.