Monopoly and Monopolistic Competition in Australian Market

Running head: PRINCIPLES OF ECONOMICS
Principles of economics
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1PRINCIPLES OF ECONOMICS
Introduction:
Within an economy, four types of markets, viz., perfect competition, monopoly,
monopolistic competition and oligopoly can be seen. These markets have different
characteristics depending on the number of sellers and buyers, types of products, restriction
regarding entry or exit and other related factors (Weller, Kleer and Piller 2015). It is essential
to mention that each market structure exists in real field and consequently classifies market of
each country accordingly. To understand the situation more accurately, the report selects
Australian industry to discuss further. In the present economy of Australia, various forms of
market structure, such as monopoly, monopolistic competition and oligopoly can be observed
(Lorenczik, Malischek and Trüby 2017). However, oligopoly structure chiefly dominates the
entire Australian market, for instance, operating structure of banking sector or retail market.
As a result, the number of monopolist and monopolistic competitive industries in this market
are comparatively low. In this context, it is essential to mention that each market has dynamic
characteristics as they change over time along with their nature of competition. This report
focuses on monopoly and monopolistic competitive industries of Australia and explains
activities of some specified sectors under these market structures.
Hence, it is essential to describe about the basic microeconomic concept of monopoly
and monopolistic competition, based on which the paper will further explain the Australian
market through selecting some specific industries, for instance, postal service or restaurant
industries. In addition to this, the report will also describe about the requirement of
government intervention in these markets.
Monopoly market:
In a pure monopoly structure, a single seller or firm operates the entire market freely
without experiencing any competition. The chief characteristic of this market is that the seller
can earn excess profit unlike any perfectly competitive market in both short-run and long run,

2PRINCIPLES OF ECONOMICS
as other firms cannot enter into the market. This implies that the product does not have any
substitute and consequently the firm performs as a price maker (Fang and Wu 2018). Hence,
the monopolist can enjoy the power to set price freely without fearing of any loss. This
following figure can describe this market structure accurately. As the number of firm within
this is market is one, this firm represents the industry and for this, firm and industry are used
synonymously. Moreover, the firm does not consider market demand and market supply, as it
operates as sole producer.
Figure 1: Monopoly Market
Source: (created by author)
Figure 1 represents monopoly market with the help of average revenue (AR),
marginal revenue (MR) and marginal cost (MC) curves. The firm maximises its profit when
marginal cost equates with marginal cost curve. According to above figure, the monopolist
sets price P for quantity Q while cost of production is C. Hence, the shaded area represents
super-normal profit of the firm through representing a difference between price of the product
and cost to produce it.

3PRINCIPLES OF ECONOMICS
Market Power:
Market power implies the ability of a firm to increase and maintain its price above the
equilibrium level to earn higher amount of profit. This type of service cannot be obtained in
any competitive market, as in this form of market free entry and exit of firm is allowed
(Phelan et al. 2017). Hence, if a firm observed that other firm is making excess profit through
enjoying market power, then the new firm can enter into the market. However, this is not
possible in a monopolistic market.
Australian monopoly industry:
Australia has some public listed companies (ASX) that operate as monopolist in their
respective sectors. The Sydney airport represents a monopoly market due to its strategic
placement. This international airport solely provides services to the people of Australia and
foreign tourists across the world. The Sydney Airport Holdings Ltd. enjoys the power to
operate the entire service of aviation and consequently does not allow other entity to enter
and operate within this sector (Forsyth 2017). Thus, the airport charges higher prices to
passengers for parking and hiring vehicles. According to a report of the Australian
Competition and Consumer Commission, the Sydney airport has provided below standard
services to their passengers, the airport charges $ 15.53 per passenger from each airline and
in turn earns huge marginal revenue (Bowyer and Chapman 2014). In addition to this, the
postal service of this country also operates as a monopolist. This government-owned business
has only one shareholder, which is, the Australian government. This specified service
operates under the Australian Postal Corporation Act 1989 while the Australian post board as
well as management takes responsibilities to run the organisation every day.
According to the Australian Competition and Consumer Commission (ACCC), the
postal service o Australia has possesses a legal monopoly for delivering letters having less
than 250 g weights that cost maximum $ 2.40 to deliver (Decker 2016). The sector operates