A Report Submitted in Partial Fulfillment of the Requirements for Microeconomics

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        ECONOMIC ISSUE IN DEVELOPED    

                              COUNTRIES

A report submitted in partial fulfillment of the requirements for Microeconomics(PEC3133).

Prepared for:

 MDM ELIZA KORI

Prepared by:

LAF4-06/14-00212

School of Accounting and Finance

Linton University College

14th OCTOBER 2014

INTRODUCTION TO MARKET STRUCTURE

         Market structure are represented by four basic market models.These are theretical structure for current firm and industries in the real works.Different market will make different decision on the determination of quantities and prices.It is all about the determination of the profit in the short and long term.Market is a term that assists the progress of buying and selling of a product,service,factor of production or future commitment or in the other words a market is a place where the buyers and sellers meet each other to carry out business.Market Structure mention  to the numbers and distribution size of buyers and sellers in the market of certain goods and services.Market structure classified into 4,which is perfect competition,monopolistic,monopoly and oligopoly.These are some market structure in which firms can function.The type of structure affects the firms behaviour whether it is efficient,and the level of profit it can generate.

                  How does monopolistic competition differ from oligopolistic.

DEFINITION

             Monopolistic is a market structure in which there are many small firms selling differentiated products but they are close substitutes each other,For example Shoes and clothes.Where as,Oligopolistic is there are only a few firm sell the same or differentiated products and it restrict the entry into and exit from the market.

CHARACTERISTICS

Market Shares

          Monopolistic Competition is a market structure there is a large number of sellers,and large number of buyers,where this firm is the only firm exist which selling  product,which has no substitute which is relatively smaller and detachment a very small market share.Since there is only one firm operates under this market,a monopolist firm is a price maker.Whereas,oligopolistic market structure has several producer,who is currently in the industry and account for most of the production in the firm,there are many small companies but that a few large firms dominate and have intense market shares.

Barriers to entry

       There are no barrier to entry the monopolistic market,like in perfect competition because of the entry and exit into monopolistic market,A key difference between oligopoly and monopolistic competition are barriers to entry. Oligopoly barriers are high. Monopolistic barriers to competition is low. However, barriers to entry is a matter of degree. The need for government authorization is one entry barrier that can create oligopoly especially if access is limited to a small number of companies. However, it can also create monopolistic competition, if a larger number were allowed to enter. Other disorders, such as start-up costs and ownership of resources, but also limits into the different degrees, resulting in either oligopolistic or monopolistic competition. In addition, these barriers to entry may change over time, transformed into oligopolistic competition, and vice versa.

Substitutes

In some cases, the difference between oligopoly and monopoly is blurred by the closeness of substitutes. A monopoly produces a good with no close substitutes. An oligopoly firms produces a good with a small number of relatively close substitutes.However, the oligopoly-monopoly difference is blurred if an oligopoly firm pursues product differentiation to such an extent that it creates a product with no close substitutes. As such, the oligopoly moves closer to monopoly. For example, Microsoft was once one of several oligopoly software companies. However, continued modification and enhancements of its software increasingly reduced the degree of substitutability with other software, moving it closer to monopoly status.Alternatively, changes in the goods produced by other firms can make the good produced by a monopoly good more of a substitute. As such, the monopoly firm becomes more of an oligopoly. For example, AT&T once held a nationwide monopoly on telephone services. Technological advances, such as cellular telephones, allowed other firms to offer increasingly close substitutes, moving AT&T to oligopoly status.

Dominance by a few

In some cases, the state more dependent on a small number of companies, rather than the corporate dominance of the total industry. Relatively equal with 3000 enterprises an industry is the most secure monopolistic competition. However an industry has 3000 firms,that is dominated by three relatively large enterprises, are the most likely oligopoly. For example, in the oil industry, there are thousands of companies, but a few large companies dominate the market, making it an oligopoly.

Cooperation

The dividing line is also blurred between oligopoly and monopoly due to cooperation and collusion. The small number of large firms in oligopoly creates an opportunity and an incentive to cooperate rather than compete. This can effectively  transform an oligopolistic industry has entered a monopoly. The industry might contain more than one firm, but those firms act as one.

Non-price competition

Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship" (McConnell-Brue, 2002, p. 43.7-43.8). The firm can also distinguish its product offering through quality of service, extensive distribution, customer focus, or any sustainable competitive advantage other than price. It can be contrasted with price competition, which is where a company tries to distinguish its product or service from competing products on the basis of low price. Non-price competition typically involves promotional expenditures (such as advertising, selling staff, the locations convenience, sales promotions, coupons, special orders, or free gifts), marketing research, new product development, and brand management costs.Firms will engage in non-price competition, in spite of the additional costs involved, because it is usually more profitable than selling for a lower price, and avoids the risk of a price war.Although any company can use a non-price competition strategy, it is most common among oligopolies and monopolistic competition, because firms can be extremely competitive. Businesses can also decide to compete against each other in the form of non-price competition such as advertising and product development. Oligopolistic business normally do not engage in price competition as this usually leads to a decrease in the profit businesses can make in that specific market.

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