Monopoly and Monopolistic Competition in Australia
Added on 2023-06-03
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Running Head: Market Structures
Monopoly and Monopolistic Competition in Australia
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Monopoly and Monopolistic Competition in Australia
Student Name
Institutional Affiliation
Course/Number
Instructor Name
Due Date
Market Structures 2
Monopoly and Monopolistic Competition in Australia
Introduction
The four market structures that exist in all world economies are monopoly, perfect
competition, oligopoly and monopolistic. These for are classified according to different
characteristics possessed by each. The classification are based on the number of both sellers and
buyers (especially the suppliers), the availability of substitute, and the entry and exit barriers.
This paper is aimed at determining the characteristic of monopoly and monopolistic structure and
then use those characteristics to determine the various examples of each market structure that
exist in Australia. The paper will also identify the advantage of each possessing different
characteristics and how they misuse such advantages. The misuse of market power calls for
intervention by competitive authorities mandated by the government (Kollmorgen, 2016). In
market where there is a significant level of competition, the government fails to impose some
regulations since it is believed that competition makes the firms only to offer fair prices. This
paper shall confirm therefore the existence of regulation for monopolies, and the absence of
regulation in monopolistic market structures.
Analysis
The monopoly market structure is characterized by only a single producer and very many
buyers. This producer supplier to all consumers in an economy and thus have market power over
output and price it offers (Carmody, 2015). What makes this producer to have no competition is
because the product offered has no close substitutes and that there is high initial cost to be
incurred for a new firm to start producing this good. This is given that the monopoly has
economies of scale that enables it to produce and deliver products at the lowest cost. The
monopoly sets its price too high and faces no competition (Murphy, 2017).
An example of monopoly firms in Australia include; the railways, the Australian Post,
electricity production and supply, water service, a large employer operating in a small town
(May, 2015). Most of the products provided by monopolies are necessities and thus they are on
high demand (Mankiw, 2016). For instance, irrespective of the prices of electricity, households
will continue consuming it because there is less option for electricity. Other sources such as
generators may be found to be costly and inefficient. When you come to water, it has no other
substitute, thus, the price does not affect consumption. Even if consumers cut their level of water
spending owing to price increment, the cut will be insignificant. In order therefore to ensure that
Monopoly and Monopolistic Competition in Australia
Introduction
The four market structures that exist in all world economies are monopoly, perfect
competition, oligopoly and monopolistic. These for are classified according to different
characteristics possessed by each. The classification are based on the number of both sellers and
buyers (especially the suppliers), the availability of substitute, and the entry and exit barriers.
This paper is aimed at determining the characteristic of monopoly and monopolistic structure and
then use those characteristics to determine the various examples of each market structure that
exist in Australia. The paper will also identify the advantage of each possessing different
characteristics and how they misuse such advantages. The misuse of market power calls for
intervention by competitive authorities mandated by the government (Kollmorgen, 2016). In
market where there is a significant level of competition, the government fails to impose some
regulations since it is believed that competition makes the firms only to offer fair prices. This
paper shall confirm therefore the existence of regulation for monopolies, and the absence of
regulation in monopolistic market structures.
Analysis
The monopoly market structure is characterized by only a single producer and very many
buyers. This producer supplier to all consumers in an economy and thus have market power over
output and price it offers (Carmody, 2015). What makes this producer to have no competition is
because the product offered has no close substitutes and that there is high initial cost to be
incurred for a new firm to start producing this good. This is given that the monopoly has
economies of scale that enables it to produce and deliver products at the lowest cost. The
monopoly sets its price too high and faces no competition (Murphy, 2017).
An example of monopoly firms in Australia include; the railways, the Australian Post,
electricity production and supply, water service, a large employer operating in a small town
(May, 2015). Most of the products provided by monopolies are necessities and thus they are on
high demand (Mankiw, 2016). For instance, irrespective of the prices of electricity, households
will continue consuming it because there is less option for electricity. Other sources such as
generators may be found to be costly and inefficient. When you come to water, it has no other
substitute, thus, the price does not affect consumption. Even if consumers cut their level of water
spending owing to price increment, the cut will be insignificant. In order therefore to ensure that
Market Structures 3
these products are sold at a fair price affordable to all, the government regulate such firms to
avoid exploitation of consumers. If monopoly firms were not regulated, they would implement
unfair market practices because, most private firms are aimed at improving their profits even at a
cost to others (McTaggart, Findlay & Parkin, 2007). They would charge higher prices because
the know that necessities have an inelastic demand, or rather, they would supply less in order for
demand to exceed supply such that price will rise. The government intervenes to ensure that a
fair quantity of such products is produced and sold at a price affordable to many.
Fig: Graph: Monopoly market structure.
Price
ATC
Pm MC
Supernormal Profit
Pr
MR AR or Demand
Qm Qr Quantity
Without government’s regulation, monopolies normally produce Qm output; this is at the
point where they maximize profits since the Marginal Revenue (MR) is equal to its Marginal
Cost (MC) (Agarwal, 2017). This output is then sold at price Pm which is very high. At this
price, the MC is lower and thus allocatively inefficient. Due to the absence of competition,
monopolies are x-inefficient and have no incentives for price reduction. This raises the greater
need for regulation by the government. The government regulates the monopoly by ensuring they
produce Qr output and sell it at price Pr which is lower than Pm (Pettinger, 2017). This is where
the MC = AR and the ATC is at its lowest level. This ensures that, monopolies breakeven but
these products are sold at a fair price affordable to all, the government regulate such firms to
avoid exploitation of consumers. If monopoly firms were not regulated, they would implement
unfair market practices because, most private firms are aimed at improving their profits even at a
cost to others (McTaggart, Findlay & Parkin, 2007). They would charge higher prices because
the know that necessities have an inelastic demand, or rather, they would supply less in order for
demand to exceed supply such that price will rise. The government intervenes to ensure that a
fair quantity of such products is produced and sold at a price affordable to many.
Fig: Graph: Monopoly market structure.
Price
ATC
Pm MC
Supernormal Profit
Pr
MR AR or Demand
Qm Qr Quantity
Without government’s regulation, monopolies normally produce Qm output; this is at the
point where they maximize profits since the Marginal Revenue (MR) is equal to its Marginal
Cost (MC) (Agarwal, 2017). This output is then sold at price Pm which is very high. At this
price, the MC is lower and thus allocatively inefficient. Due to the absence of competition,
monopolies are x-inefficient and have no incentives for price reduction. This raises the greater
need for regulation by the government. The government regulates the monopoly by ensuring they
produce Qr output and sell it at price Pr which is lower than Pm (Pettinger, 2017). This is where
the MC = AR and the ATC is at its lowest level. This ensures that, monopolies breakeven but
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