The the firm and the choice of a competition

The importance of knowledge market structure has
always been a vital asset since the rise of globalization. In today’s world,
the debate about branch which has its own market specificity – the production
of different goods, a various industry of sellers, the size of enterprises, the
features of innovation, the composition and specificity of consumers is
becoming more and more popular.

In microeconomics, the most elementary market
structures are generalized and the conduct of manufacturing firms is studied,
leading to the receipt of the greatest benefits for them-the receipt of the
maximum profit. All of these generalizations are considered to be a key development,
specific recommendations are developed that have important applied importance
in the choice of the firm’s behavior strategy in specific market features.

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The object of the evaluation of competition is the branch.
For instance, a group of competitors producing goods/services and directly
competing with each other. The purpose of the analysis is to identify the “competitive
advantages” of the firm and the choice of a competition strategy.

There are four main market
structures: Perfect Competition Monopolistic Competition, Oligopoly and Monopoly.

 

 

Perfect competition

Perfect competition indicates a market structure, in
which a plenty amount of small companies compete against each other. Moreover,
firms do not have a significant impact on power of market. Consequently, the
manufacture generally produces the absolute level of production, which in turn
lead to market has many buyers and producers trading homogenous
products so that each buyer and seller is a price taker.

Perfect competition relies on the following elements:

·        
All small firms are
focused to maximize profits.

·        
The goods which
offered by the different sellers are largely the typical.

·        
There are not
specific preferences between different sellers. It does not matter for the
customer from which firms buy the products.

·        
All firms have
free access and exit to the market.

·        
There is perfect
information and knowledge about homogenous products.

At present, according to Nelson statistics (2017)
3885567619 out of the global population 7519028970 people use the internet.
Approximately 3.9 billion internet users are both producers and consumers. The
above mentioned example demonstrates that the internet is a market, where a
myriads number of consumers/producers operate without any influence on market
power which in turn lead to equal opportunities in this market, exemplifying
one of the features of perfect competition.

     Example
of perfect competition.

            Internet related industries. The
internet has a strong influence on perfect competition market due to the fact
that the internet has made the way of comparison and check prices easily,
quickly and efficiently (perfect information). Consequently, selling any kinds
of good on the internet through a service such as Alibaba, Aliexpress and E-bay
is extremely similar to perfect competition. For instance, it is becoming more
and more popular to use the above mentioned online magazines to compare prices
of any types of product and buy cheaper ones.

Like perfect competition online magazines namely
Alibaba, Aliexpress and E-bay relies on the following elements:

·        
There also a large
number of sellers.

·        
Perfect
information and knowledge. It is easy to compare the prices of goods.

·        
There are no
significant barriers to entry and to exit to the market.

Monopolistic competition

Monopolistic competition is a type of market structure
consisting of many small companies that produce differentiated products and free
entry to the market and exit from the market. The products of these firms are
close, however not completely interchangeable, it means that there is a
difference in price, features, branding and marketing.

By
differentiating the product, the /monopolistic
competitor reduces price elasticity. Raising the price, the monopolistic
competitor is not lost of all consumers, as it happens in the conditions of
perfect competition. The market is somewhat narrowed, however, there remain
those who steadily prefer the products of only this manufacturer.

Monopolistic competition relies on the following
elements:

·        
availability of
many sellers and buyers (the market consists of a large number of independent
firms and buyers);

·        
free access to and
exit from the market (no barriers that keep new firms from entering the market
leaving the market);

·        
Differentiated, varied
products offered by competing firms. Moreover, products may differ from one
another in one or a number of properties (for example, in chemical
composition);

·        
perfect awareness
of sellers and buyers about market conditions;

·        
influence on the
price level, but in a rather narrow framework

 

Example of
monopolistic competition:

One of the most convenient
example for the monopolistic competition is washing powder.

There are quite a few different companies in Poland
such as, Ariel, Tide, Ares, Perwoll, Lenor, Vizir, Perlux, Maxi trat, FF,
Persil, Losk, Surf, Bio Power, Origami and so forth. As a result, for the production of new
varieties of detergent powders it is not required to create a large enterprise.
Therefore, if firms producing powders will receive large economic profits, this
will lead to the inflow of new firms into the industry. New firms will offer
consumers washing powder of new brands, sometimes not much different from those
already produced in a new package, another color or designed for washing
different types of fabrics.

OLIGOPOLY

The market of oligopoly is characterized by the
presence on the market of a minimal number of large sellers, whose goods can be
either homogeneous or differentiated. The entrance to the oligopolistic market
is extremely difficult, the entrance barriers are very high. Control of
individual companies over prices is limited. Examples of oligopoly can serve
the automotive market, cellular communication markets, household appliances,
metals. The difference of the oligopoly is that the decisions of the companies
about the prices for the goods and the volumes of its supply are
interdependent. The situation on the market depends heavily on how companies
react when the price of a product changes with one of the market participants.
Two types of reaction are possible: the first is reaction ,when other
oligopolists agree with the new price and set prices for their goods at the
same level (follow the initiator of the price change);the second ignoring
reaction – other oligopolists ignore the price change by the initiating firm
and maintain the previous level of prices for their products. Thus, for the
oligopoly market, a broken demand curve is characteristic.

Features and conditions of oligopoly:

·        
the number of
sellers in the industry: small;

·        
size of firms:
large;

·        
number of
customers: large;

·        
goods: homogeneous
or differentiated;

·        
control over the
price: significant;

·        
access to market
information: difficult;

·        
barriers to entry
into the industry: high;

·        
methods of competition:
non-price competition, very limited price.

Cellular services today are the most profitable and
rapidly growing segment of the telecommunications market in Russia. A small
number of sellers dominate the Russian cellular market, which is one of the
most obvious example for oligopoly. The leading players here are MTS, Megafon,
Beeline, Tele2. A feature of the Russian cellular market is that it is
characterized by a high level of competition. MTS successfully relies on the
price leadership strategy; Megaphone applies the strategy of minimum prices for
services; Beeline relies on a pricing strategy based on individual costs; Tele2
provides the widest range of tariff plans at low prices.

Monopoly

Monopoly occurs when an enterprise produces products
for which there is no substitute. The opposite of perfect competition is a pure
monopoly – a market where only one firm operates, which by virtue of this
circumstance can influence the market equilibrium and market price.

Monopoly – a market structure that meets the following
conditions:

·        
The release of
goods throughout the industry is controlled by one seller of this product, which
means that the monopolist is the only producer of this good and personifies the
entire industry.

·        
The good produced
by the monopolist is special in its own way and has no close substitutes.

·        
Monopoly is
completely closed to enter the industry of new firms, therefore in the
conditions of monopoly there is no any competitive struggle.

Example of Monopoly:

The most prominent example of a pure monopoly in the
United States is the United States Postal Service (USPS). People have all heard
that the Postal Service lost a lot of money. According to a report released in
2014, the United States Postal Service lost a staggering $2 billion dollars in
just 3 months, despite cutbacks in service. With such a glaring need for developed
operations, you might wonder why other businesses haven’t entered the market to
compete with the Post Office for first-class and standard mail delivery.
Moreover, it should be noticed that the Post Office is a government-protected
monopoly. The Private Express Statutes established in 1792 gives the USPS
exclusive rights to deliver letters for a fee, with very few exceptions.  Letters that are designated to be
‘extremely urgent’ may be delivered by other providers but even then, the Post
Office is allowed to set the minimum price that the private competition must
charge. This is an example of a legal barrier to entering the market.

In conclusion, there are four main types of market
structure: perfect competition, monopolistic competition, oligopoly and
monopoly. The perfect competition illustrates a market structure, where myriads
of small firms contend with each other, while monopolistic competition also has
a lot of small firms, which compete with each other with the help of varied
products. Besides, Oligopoly demonstrates a marker structure with small number
of firms. Monopoly is the opposite of perfect competition, where only one firm
controls all market.

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