Monopoly, oligopoly, monopolistic competition, and perfect competitive market are the 4 types of market competitions we experience in the today’s rapidly globalizing market. Market competition is a rivalry among businesses to attract customers by offering better products or lower prices. It is vital as it drives innovation, promotes efficiency, and ultimately leads to improved consumer choices. In this article, I’m going to provide a detailed account of 4 types of market competitions.
For layman’s knowledge, market competition is a rivalry among various businesses selling similar or identical products in the same market. In the process, every single contender in the competition tries everything to capture more market share and power to maximize profit. By doing so, all the businesses adopt various strategies to attract more and more customers by offering lower prices, product quality and so on.
Importance of Understanding Market Competition
Market competition plays a significant role in determining various economic factors such as pricing, product quality, and innovation. Market competition impacts pricing strategies directly. In a highly competitive market, companies often lower their prices to attract consumers, which can lead to improved market efficiencies. Consumers benefit from this competitive pricing as well.
Second, competition drives businesses to enhance their product quality, as firms strive to meet or exceed the offerings of their competitors. This results in a beneficial cycle for consumers who receive better products and services.
Third, Innovation is another critical aspect influenced by market competition. Companies are encouraged to innovate, not only to meet the changing demands of consumers but also to keep pace with competitors.
Understanding major types of Market Structures: Monopoly, Duopoly, monopolistic, and Perfect Competition
Market structures are pivotal in defining how companies operate within an economy. Among the major classifications are monopoly, duopoly, and perfect competition, each exhibiting distinct characteristics that influence market dynamics.
Monopoly market competition
A monopoly exists when a single seller dominates the entire market. It is characterized by significant barriers to entry. Actually, it limits the ability of other firms to compete. As the sole provider, the monopolist can set prices higher. Because in monopoly market, monopolist become price maker. It decides the prices of goods and services.
In a monopoly, where a single firm dominates the market, the lack of competition often results in higher prices for consumers. Without rival companies, monopolistic firms can set prices above marginal costs, leading to reduced consumer surplus and overall economic inefficiency.
Factors responsible for rise of monopoly and competitive markets
Tariffs and barriers, natural resources, factors of production, government incentives, and regulatory framework are the major factors responsible for rise of monopoly, oligopoly, and competitive markets. Let’s have a look at the following list of factors.
- Tariffs and barriers
- Factors of production
- Natural resources
- Comparative advantage
- Government incentives
- Regulatory framework
When a single firm enjoys all the conditions in the absence of others, then it is called monopoly. On the other hand, in case of more than one competing firms, we call it oligopoly market competition.
Duopoly market competition
Conversely, a duopoly is defined by the presence of two firms that significantly influence the market. The interplay between these two entities can result in varied pricing and output strategies. Unlike monopoly, where only one firm holds power, a duopoly creates a competitive yet collaborative atmosphere.
In such competition, firms may find themselves in a situation where strategic decisions, such as pricing or product development, directly affect their competitor’s actions. This competitive tension can lead to innovations or tailored offerings to gain market share. Classic examples include the rivalry between Jio and airtel in India, and Coca-Cola and Pepsi in America.
Monopolistic market competition vs perfectly competitive market difference
But, if there are many players competing with each other with products that are not completely identical, nor have perfect substitute, is known as monopolistic market. And, if there are many companies which are selling identical product in the absence of government restrictions and incentives with similar level playing field, we call such market as perfect competitive.
In the every market competition, it is essential to know the condition regarding barriers to entry and exit. If there is no barriers to entry and exit, the given market qualifies to be called as perfectly competitive market.
What are the characteristic features of competitive market
First, there should be a level playing field for everyone. Also, they should have equal rights regarding use of resources.
Second, the numbers of buyers and sellers of the same products should be large enough. Otherwise, it may be termed as oligopoly market.
Third, both buyers and sellers should be price taker. In clarity, the market forces should decide the price of targeted product, instead buyers or sellers.
Finally, in case of, alternative or substitute, the price of the product may affect. Hence, there should not be any effective substitute as well.
Hotels, restaurants, grocery shops, clothing and footwear are the examples of monopolistic market competition. Agricultural markets, vegetable vendors, telecom companies, and currency market are examples of perfectly competitive market. Perfect competition represents an ideal market structure featuring numerous buyers and sellers, all offering identical products.
Price maker and price taker in market competitions
In the market, if the given player is willing to accept ruling market price, then, such player becomes price taker. Inversely, if the firm or company has ability to influence market price in his favour, such player qualifies to become price maker.
In monopoly and duopoly market competitions, players act as price maker due to ability to influence market prices. On the other hand, in the perfectly competitive markets players hardly have ability to influence market prices, and accept the ruling price of market.
Price maker and market power
Usually, a player become price maker if it has ability to influence market price of given product. Once it does so, either by the means of comparative advantage or favourable conditions, it starts capturing market share.
Eventually, With larger market share, player can easily influence market price in his favour. In this way, it becomes price maker. This is the beginning of monopoly market of given product.
Difference between monopoly and oligopoly markets
In the monopoly market, single seller enjoys all the favourable conditions, and decides market price in the absence of others. Whereas, in oligopoly market, there are more than two players enjoy all the available benefits and they collectively determine price of product. This is the difference between monopoly and oligopoly markets.
Monopoly vs duopoly vs oligopoly markets
If a company has all the favourable market conditions. It means that company enjoys all the benefits like government incentives, factors of production, and natural resources compare to others. In such situation, we used to say that the given company has monopoly over the market in terms of specific product.
Generally, it is called sellers monopoly and is an example of imperfect competitive market. Indian Railway, energy and electricity companies are the best examples of monopoly companies. Because, it is not possible to have perfect competitive market in terms of utility companies.
Duopoly market competition and examples
Duopoly market competition emerges when there are only two players dominate the given market in the absence of others. In the duopoly, only two players enjoy all the available incentives and benefits.
Alibaba vs Amazon, Flipkart vs Amazon, pepsi vs Coca-Cola, Swiggy vs Zomato, Ola vs Uber McDonald’s vs Burger King are the examples of duopoly in India and world. In the duopoly market, only two players dominate prices of product.
Oligopoly market competition and examples
On the other hand, if there are more than two companies enjoying all the favourable conditions or benefits, in the absence of competition from others, such market state is called oligopoly market.
Global vaccine market is dealing with oligopolies according to World Health Organization (WTO) . The vaccine companies are — Pifzer, Moderna, BioNtech, Astra Zeneca, and Serum Institute of India. These vaccine companies constitute more than 70 percent of global vaccine.
Oligopsony vs monopsony market difference
When it comes to buying commodity, the market is classified as oligopsony and monopsony. In the oligopsony market competition, there are only few buyers for the product despite there are many sellers.
Tobacco products companies are example of oligopsony as there are few buyers of tobacco but producers are many. This is an example of buyer’s oligopoly. Not complete but, it is also an example of imperfect competitive market.
And, in monopsony, there is only one buyers of the product. But the sellers of product may be few or many. In both situation, buyers are price makers as they determine the market price instead to accept market ruling price.
Weapon industries are examples of monopsony as there is single buyers of weapons of many companies. Simply, it is buyer’s monopoly and example of imperfect competitive market. Home
https://en.wikipedia.org/wiki/Competition_(economics)
https://www.econlib.org/library/Topics/Details/competitionmarketstructures.html
https://en.wikipedia.org/wiki/Competition_(economics)