I. Market Structure Examples
Indian Railways is a combination of legal–and natural–monopoly in railway transport in India, due to the government’s prohibition of the private sector from entering the market and economies of scale attained by the extensive railway network across the country (The World Bank, 2021). The market has high barriers to entry due to enormous operating costs that require a separate budget from the government every year. There are no close–substitutes that can provide transportation at such cheap prices and convenience like trains in India (Agarwal, 2014). The subsequent inelasticity of demand allows Indian Railways to charge different prices for an identical service to capture different consumers’ willingness to pay (Indian Railways, 2021).
Sydney Water Corporation (SWC) is a natural–monopoly in Sydney’s water supply market as its large size helps achieve economies of scale. The necessity of the service and lack of substitutes lead to price-inelastic demand, allowing for abnormal profit for SWC ($2,927M in 2019) (Sydney Water Corporation, 2020). Although regulations allow entrance to the market, barriers to entry remain high due to gigantic set-up costs and complex–management (Sydney Water Corporation, 2013).
Coca-cola and PepsiCo always be the rivalry in reaching exclusive–agreements with retailers and leading chains, forcing the habit of customers so their drink can become their preferred choice. For instance, Mc, Donald’s is the exclusive partner of Coca-cola while Burger King or KFC are close partners of PepsiCo, creating repeat sales, one of the sources of revenue that brings these firms an abnormal income (Figure 2) (National Policy and Legal Analysis Network to Prevent Childhood Obesity and Public Health Law & Policy, 2011). The net revenue of Coca-cola is 33 billion and PepsiCo was 70.37 billion–dollars in 2020 (Pesico, 2021; The Coca-Cola Company, 2021). These brands compete for the exclusive package of their goods, marketing strategies in order to attract more customers and trigger and gain more loyalty. Moreover, these firms are speeding up for innovation as the appearance of new favors and new features. (Lévêque, 2018). The barrier to entry of the soft drink industry is high when these companies had built a huge loyal customer–network that sticks to the brand; strong marketing strategies and tactics. (National Policy and Legal Analysis Network to Prevent Childhood Obesity and Public Health Law & Policy, 2011)
The oil industry is one of the examples of pure oligopoly as there is no very little product differential which leads to very little or non-price competition. All the more reason that OPEC is established, a cartel that members are interdependent and colluding and fixing the price of oil to push the market prices higher, making the demand inelastic (Lin, 2013). In 2018, OPEC members’ production accounted for approximately 80% of global proven oil reserves (OPEC, 2019). Therefore, OPEC’s decisions have huge influences on the stability oil market.(Noguera and Pecchecnino, 2007). In the oil industry, the supply-side barriers to entry are high as the enormous costs–of–research in oil exploration, set-up, fixed capital, regulations, and patents. High barriers to entry eliminate the competitors, making huge benefits to established companies (Jones, Mead and Sorensen, 1978). Consequently, oil firms earn abnormal profits ($323B in 2020)(US Energy Information Administration, 2021).
3. Monopolistic Competition
One of the markets that well-captures monopolistic competition is the retail bakery as there are approximately 23000 retail bakeries in the US, which makes the demand more elastic as the products are partly identical which creates more substitutes for customers (Safe Graph, 2020). Therefore, because his market is in non-price competition, businesses have to have product differentiation by adding more values, improving the quality, and attracting customers. The profit made in this market remains normal in long run, however, it also can potentially create supernormal profit in short term. Fay Da Bakery has gone viral in a short time, and the bakery is now the most popular Chinese bakery in New York City, thanks to its specialty fresh roast-pork buns and other traditional soft buns. With the significant growth, the brand now has 13 branch locations and gain a great number of loyal customers, which makes the products different from the competition. (Food Insider, 2019)
The hair salon is another perfect market to describe monopolistic competition, a common market structure that highly fragmented, which leads to a relatively high level of competition. Because the lower the start-up and license costs and risks are, the greater the incentive to enter the market. The US market in 2021 runs over 970000 salons (IBIS World, 2019). Therefore, every business has independent decisions about price and output. As a high-demand market and highly competitive market, businesses have to differentiate themselves, competing on price but more importantly, the quality of products used and service, branding, and advertising to develop a reputation, garnering new clientele, and remaining the repeat customers. (Oliver, 2017)
4. Perfect Competition
Theoretically, the perfect competition is quite rare to give example. Therefore, two close perfect competitions will be mentioned below.
The cotton futures market, like any type of futures, is an example of perfect competition. Futures contracts for cotton are standardized in terms of quality–and–quantity, thus making any contracts for similar quantity and quality of cotton “homogeneous”. Since all specifications of the cotton itself and its futures are provided and prices of cotton futures are constantly updated on exchanges, information can be considered “perfect” (International Trade Center, 2021). Prices of cotton futures are subject to international supply, demand, and cost of carrying, therefore, both buyers and sellers of the futures contracts are price-takers, except that sellers might only alter prices by a small amount to stay price-competitive. There are almost no barriers to entry since everyone can register on a futures exchange (International Trade Center, 2021b).
Another example of this market structure is the internet-related industries. The internet has lower the barriers to entry and exit as there are no/low fees and browsing costs that attract millions of sellers, making the online markets competitive more than ever. Take the online shopping platform, eBay as an illustration. As the goods are homogeneous which are the perfect substitutes, the demand becomes perfectly elastic. eBay notifies the prices overtly which creates the perfect–level–of–knowledge about the price for both buyers and sellers to compare and vigorous price-based competition to win the customers. However, in such a free platform, the price of numerous goods declined. Therefore, it only creates normal profits.(Chang, 2010; eBay export 2021)
II. The Impacts of Oligopoly
1. Merger and Acquisition
In 2015, Heinz merged with Kraft, becoming the third-largest food and beverage company in the US and the fifth-largest worldwide. The deal was also expected to save the production–cost $1.5 billion in 2017 as the company can achieve economies of scale. Another example is that in 2012, Facebook bought Instagram for $1 billion after knowing it Instagram, a smaller competitor can be a potential threat. The impact of the merger can enhance the firm power and the level–of–competition in the market as the number of small businesses has reduced notably in most industries.
2. Predatory Pricing
An example shows that Amazon dominant the prices and drives competitors out of the market. For example, not only Amazon control prices on their website, but they also manipulate the price on other websites by making other prices higher (such as Walmart and Target). In addition, Amazon has disallowed sellers on their website to offer lower prices on another web than they do on Amazon. (Hubbard, 2020)
III. Governments’ policies to encourage Monopolistic Competition’s markets to innovate
In establishing a globally competitive biomedical industry, the Singapore government has since 2000 launched multi-faceted schemes to encourage and assist R&D and build sustainable clinical sciences innovative capabilities (Yeoh, 2008). The initiatives include tax exemption for new firms introducing high-tech skills; concessionary tax rate for firms engaging in development–and–expansion; subsidies and technical assistance for R&D; building an R&D hub and infrastructures; and, support for scientific training to attract, develop and retain biomedical human capital (Lim and Tai, 2010)
1. Impacts on producers
With government interventions, the business environment for biomedical firms has become conducive with reduced barriers to entry. Moreover, the favorable conditions have attracted significant foreign investments (from USD 18.1Bn in 2001 to 47.4Bn in 2007) (Lim and Tai, 2010) and new foreign entrants, intensifying the already high competition among growing (Yuling and Bogaerts, 2014) numbers of domestic firms. (A*STAR Pharmaceuticals & Biologics, 2021)
Despite operating in a monopolistic competitive market containing numerous big and small players, (Enterprise Singapore, 2021) biomedical producers in Singapore have retained their price-setting power, reflected by constant price rises (Figure 5), thanks to high levels of differentiation and product innovations from cutting-edge R&D. (Poh, 2010) As a result, producers have reaped growing profits, of which FDI return on investment in the biomedical sector rose from 22.5% in 2003 to 43% in 2007 (Singapore Department of Statistics 2010). Moreover, with improved information and access to production technology from government support, producers have been able to gain a competitive advantage from innovation, product–specialization, and efficiency.
Figure 5: (Economies and Consumers Annual Data, Euromonitor International)
2. Impacts on consumers
Despite price rises, consumers have considerably benefited from the advancements of the medical industry with more product choices, improved–quality, and greater availability of product information to assist informed decision-making. Most importantly, consumers have been better-off with innovative and advanced medical solutions researched and developed from Singapore – the world’s now leading biomedical sciences hub.
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