Market Structures and Competition

Schaum's Outline of Microeconomic TheoryCompetition varies widely in different market structures. Perfect competition and monopoly are the two extremes. At one end, we find intense competition. While, no competition exists in case of monopoly. A monopolist produces a product which is distinct and which cannot be produced by any competitor. He himself will set the price at which he will sell his output. The demand curve of the firm and the industry are the same. The monopolist firm controls both the price and supply of the commodity. Depending upon the categories of customer, the monopolist may decide different prices in discriminating monopoly.
In monopolistic competition, each seller has an independent price-output policy. Patent rights, quality differentiation, packing, advertising, etc. are used to differentiate product. Each individual firm enjoys some monopolistic power due to product differentiation. No seller is big enough to influence the market price.

Oligopoly Pricing: Old Ideas and New ToolsIn duopoly, the two sellers in the market compete with each other. They respond to each other’s strategies. This competition normally leads to strategic alliance as they start feeling that their survival depends on cooperation and not on confrontation.

In oligopoly, the firms go for advertising, product differentiation, quality improvement, etc. Competition amongst them bring the element of interdependence. There may be two possible scenarios:

  • One in which an oligopolist eliminates a few other competitors.
  • Alternatively, there may be collusion amongst competing firms. MRTP laws regulate collusions as this would result in higher price.

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