Monopoly and Monopolistic Competition in Australian Industry

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student:
Name of the University:
Author’s Note:

ECONOMICS ASSIGNMENT
Identify, from Australian industry, examples of monopoly and monopolistic competition
and explain how and why governments may engage in policy intervention with respect
to monopolies but not do so with respect to firms operating in a monopolistically
competitive industrial structure.
Australia is one of the countries with competitive pressures and market power. The different
market structures that exist in the country have strong market hold but largely do not share to
the output and employment (Minifie, 2017). On the other hand, the market structures in
Australia have risen but the profitability has not mounted up since 2000’s. The market
structures that control half of Australia is monopoly, followed by a narrowed version of
monopoly as oligopoly and monopolistic competition.
Monopoly and monopolistic competition are two different market structures. The former
market structure needs intensified competitive pressures by the policymakers whereas the
latter needs to compete with different products through the advertisements due to product
differentiation (Waldman & Jensen, 2016). Nevertheless, the Australian industries like
Australia post (mail), wired telecoms, transmission and electricity distribution are natural
monopolies, followed by high profits from supermarkets and highly regulated sectors like
gambling that are considered to be uniformly strong holders in monopoly.
On the contrary, monopolistic market structure in Australia does not need intervention from
the government because pf product differentiations which keeps the price low and with less
barriers on entry and exist of firms (Black, 2017). Some examples of monopolistic
competition would be cafes and coffees like Gloria Jean’s Coffees from the coffee industry,
or in construction industry in heating, ventilation and air conditioning (HVAC) sector from
the mechanical services industry or the fast food industry covering Domino’s, Pizza Hut,
KFC, Red Rooster, and so on.

MC
MC
Price
Price
Pm
AR
ARMR
MR
Quantity Quantity
Figure 2: Regulating a MonopolyFigure 1 : Optimal Pricing of
Dominant Firm
E, Allocative Inefficiency
Allocative Inefficiency
due to Regulation
AC
Pm
Pd
Change in Demand
PC
ECONOMICS ASSIGNMENT
Monopolies and government intervention can go hand in hand because the government itself
grants monopolies with the “exclusive franchises” considered as “public utilities”. The
natural monopolies like electricity have regulated market and does not possess competition
because of economies of scale which in turn has reduced average total cost so that desirable
rates can be paid by the customers and the electricity can be allowed at low (Nelson, et al.,
2017). Nonetheless, this cannot be possible by a monopolistic competition market where
there are many sellers with high average total costs leading to higher prices from the
consumers. The only reason, that monopoly market needs to be regulated so that a price
higher than social optimal cannot be marked with less production (Mahoney & Weyl, 2017).
Diagrammatically, a monopoly acting as a dominant firm can be compared with a regulated
monopoly.
Source: (Waldman & Jenson, 2016)

ECONOMICS ASSIGNMENT
The figure 1 shows the dominant positioning of a monopoly when it a price higher is set in
response to small firm is set such “Pm” would be considered as a “Monopoly Price”. In other
figure 2, a cost function is faced as “C = F + c(q)q” where F = Fixed capital costs and c(q) =
marginal cost of operation (constant), and “Pm” would be the monopolist price with profits as
π as a net profit of (π – F) with “E” as allocative inefficiency. Now, if there is regulation in
the market, then then MC intersects such that the price below monopolist price could be
competitive price “Pc” and E would be 0 but the AC is too high and as a result, the firm
might have to exist the market as it cannot recover its cost. Hence, this would entail a
government’s regulation of taxes or subsidy in the market (Waldman & Jenson, 2016).
The argument stresses on making a single provider and making the monopolies break free
from competition and later regulating the monopoly pricing and providing its welfare to the
customer through by passing the savings to increase the efficiency. One such example from
history of monopoly raises the question that when three gas companies tried to merge in
1888, Thomas Alva Edison discovered “electric light” which not only made all the gas
companies vulnerable but also, there was no materialization on natural monopoly or
economies of scale with no free market (Mainer, 2010). Further, the regulation in market can
be duly a “high power regulation” if the monopoly is savoured with incentives for the series
of cost reduction with quality provision (Chamberlin, 2015). In other words, it suggests that
the regulated firm would possess higher degree of risk which would entitle the regulator to
give a strong commitment for maintaining monopoly in the market.
Irvine (2011) opined that Australia is a land of breeding oligopolies or monopolies and has
ripped of the individual through its competitive nature. As distinguished by the companies,
Australian revenue is generated by wired telecoms, transmission and telecommunications.
However, mobile telecoms in Australia are assumed to be more expensive than US for the
companies like Telstra, Vodaphone or Optus. Although, this is a new sector and technology is