Australian Healthcare Industry: Oligopoly, Monopoly, and Duopoly

This report provides an analysis of the Australian healthcare industry, focusing on the impact of different market structures such as perfect competition, monopoly, duopoly, oligopoly, and monopolistic competition. It evaluates the advantages and disadvantages of each structure from the perspectives of consumers, producers, and the government. The report finds that while perfect competition offers the best pricing for consumers, it lacks product differentiation, whereas monopolies, while beneficial for producers, can lead to inefficiencies and high prices. The Australian healthcare sector currently operates under monopolistic competition. The report suggests that consumers should make informed decisions, producers should focus on innovation and economies of scale, and the government should ensure fair market practices and encourage innovation to improve healthcare quality and accessibility. Desklib offers a range of resources, including past papers and solved assignments, to aid students in their studies.

Running Head: HEALTHCARE INDUSTRY IN AUSTRALIA
Economics for Business Assignment
Oligopoly, Monopoly and Duopoly Market Structure in Australian Healthcare industry

HEALTHCARE INDUSTRY IN AUSTRALIA Page 1 of 9
Australian Healthcare: Optimal Market Structure
(by: Student Name)
A nation cannot progress without a stable and well-established healthcare industry.
Healthcare industry faces a cut-down in expenditure owing to the bill of National Health
Amendment Pharmaceutical Scheme (2010). The industry comprises of the pharmaceuticals,
biotechnology and medical practice (Australiance, 2016). Healthcare plays an important role
in the prevention of diseases. It is important to promote a healthy living to assess, prevent and
manage chronic and other diseases. Lifestyle plays a vital role in the same (Harris & Lloyd,
2012). The paper analyses the role of market structure to assess and increase the affordability
and accessibility of healthcare facilities.
It is important to study the various forms of market to find the best possible form which will
benefit the society as a whole. They key players are the consumers, producers, government
and the society. A consumer or patient would like to reside in a nation which has low-cost
and high-quality healthcare. On the other hand, a producer would like to function in a nation
with preferred market structure which has easy entry and exit, promotes research and
provides high profits. The society wants to maximise its welfare. On the basis of competition
level, a market can take many forms like perfect competition, monopoly, oligopoly, and
monopolistic competition.
Figure 1: Market structure on the basis of competition

HEALTHCARE INDUSTRY IN AUSTRALIA Page 2 of 9
(Singh, 2016)
Figure 2: Level of competition and concentration in different market structures
(Economics Online, 2018)
Figure 3: Features of different market structures
(Chand, 2018)

HEALTHCARE INDUSTRY IN AUSTRALIA Page 3 of 9
In hypothetical case when perfect competition existed in the healthcare industry, there would
be homogeneous products supplied by a large number of sellers. The consumers are
indifferent between two sellers in this type of market. The prices are determined by the forces
of demand and supply. The price charged is low, which is good from a consumer’s
perspective and bad from the producer’s perspective. There are no super-normal profits to the
producers. The healthcare industry in this market will have low- specialisation and low
profits.
Figure 4: Price determination in perfectly competitive market
(My CBSE Guide, 2018)
In case of monopoly (contrary to perfect competition) there will be a single seller in the
whole industry of healthcare. The producers will charge high profits and earn super-normal
profits. This is a favourable form of market for a producer as he enjoys his monopoly with by
being a price maker. The product supplied is unique. On the contrary, the consumers are
worse-off because of high and differentiated pricing in healthcare industry. There is
inefficient production in a monopoly structure.
Figure 5: Price determination in monopoly

HEALTHCARE INDUSTRY IN AUSTRALIA Page 4 of 9
(Shaikh, 2018)
Duopoly is a sub-form of oligopoly market structure with only two sellers. The sellers are
independent and sell differentiated products. Their pricing and output supplied are affected
by the other firm’s pricing and output level. This market form is better than monopoly due to
lesser efficiency losses and increased competition. This is not a favourable market form from
a consumer’s perspective.
Oligopoly in healthcare will have a few numbers of firms selling differentiated products. This
enables them to decide the price level and earn super-normal profits. The consumers have a
variety of specialised products to choose from. There is an intense competition between the
firms, not based on prices. The firms are highly interdependent and try to maximise their
profits interdependently. There is selling cost to the producer. The quality of supplied
products is high.
Figure 6: Joint profit maximisation in oligopoly
(Guru, 2018)
In the real world, healthcare in Australia has monopolistic competition in healthcare industry.
There are a large number of firms providing differentiated products and services. The
producers decide on their own prices. There is a high selling cost because of slight
differentiation of products. The firms have to advertise heavily to survive the competition.

HEALTHCARE INDUSTRY IN AUSTRALIA Page 5 of 9
Figure 7: Profit maximisation under monopolistic competition
(Jain, 2018)
The consumers are interested in the market form which provides them low prices and high
quality products. They want customised and highly specialised products at affordable prices.
Consumers want to maximise their consumer surplus. The sellers are interested in high prices
for low-cost products. The sellers prefer markets which offer high returns and stable demand.
The producers want to maximise the producer surplus in politically and economically stable
markets.
Consumers should analyse the market structure and make judicious purchases. The
advertisements offered by the firms often make people make frivolous purchases. The
consumers should make use of the advertisements provided and choose the healthcare which
provides them maximum number of facilities at lowest prices, given their budget constraint.
Producers need to increase the market share and the level of production to achieve the
economies of scale. They should look for low-cost inputs and try to maximise their profit
through the economies of scale rather than charging high. They should increase innovation
and research (Ormerod, 2018).
Australian government needs to check the product and services in the healthcare sector to
improve the quality. There should be strict implementation of laws and regulations in the
healthcare sector because of the sensitivity of the issue. The government also needs to
increase its investment in public services. It should aim to prevent monopoly formation and

HEALTHCARE INDUSTRY IN AUSTRALIA Page 6 of 9
promote innovation through patents and other rights (Jha, 2018). The tax rate should be
minimum, to encourage more firms to enter the market and reduce the prices down.
It can be concluded that, from the point of view of pricing, perfect competition is highly
favourable. The society can maximise its welfare under the same but has to give up on the
product differentiation. Monopoly is highly favourable to a producer because of high returns
and price discrimination. Producer should aim for constant innovation to provide
differentiated products and earn profits out of first-mover advantage. Research and
innovation is the key to profitability and sustenance.
It is the duty of the government to keep a check on the market structure and avoid the
exploitation of customers. It should also support the producers and encourage them towards
innovation. This will lead to better and healthier population. This will not only increase the
utility of the consumers but also the profitability and interest of the producers.

HEALTHCARE INDUSTRY IN AUSTRALIA Page 7 of 9
References
Australiance, 2016. Key industries in Australia. [Online] Available at:
http://www.australiance.com/key-industries-in-australia/ [Accessed 25 April 2018].
Chand, S., 2018. Market Structure: Meaning, Characteristics and Forms | Economics.
[Online] Available at: http://www.yourarticlelibrary.com/economics/market/market-
structure-meaning-characteristics-and-forms-economics/28736 [Accessed 25 April 2018].
Economics Online, 2018. Market structures. [Online] Available at:
http://www.economicsonline.co.uk/Business_economics/Competition_and_market_structures
.html [Accessed 25 April 2018].
Harris, M. & Lloyd, J., 2012. The role of Australian primary health care in the prevention of
chronic disease. Australian Government.
Jain, S., 2018. Monopolistic Competition. [Online] Available at:
http://www.economicsdiscussion.net/monopolistic-competition/essay-on-monopolistic-
competition/17821 [Accessed 25 April 2018].
Jha, M.R., 2018. The interplay between patents and anti-competitive practices. [Online]
Available at: http://www.worldtrademarkreview.com/Intelligence/IP-Lifecycle-India/2018/
Articles/The-interplay-between-patents-and-anti-competitive-practices [Accessed 25 April
2018].
my CBSE guide, 2018. Forms of Market and Price Determination class 12 Notes Economics.
[Online] Available at: https://mycbseguide.com/blog/forms-market-price-determination-
class-12-notes-economics/ [Accessed 25 April 2018].
Ormerod, P., 2018. Cyber society needs monopoly-busting competition, not misguided
regulation. [Online] Available at: http://www.cityam.com/284636/cyber-society-needs-
monopoly-busting-competition-not [Accessed 25 April 2018].
S, S., 2016. Difference Between Perfect Competition and Monopolistic Competition. [Online]
Available at: https://keydifferences.com/difference-between-perfect-competition-and-
monopolistic-competition.html [Accessed 25 April 2018].

HEALTHCARE INDUSTRY IN AUSTRALIA Page 8 of 9
Shaikh, S., 2018. Determination of Value or Price under Monopoly (With Diagram) |
Monopoly. [Online] Available at:
http://www.economicsdiscussion.net/monopoly/determination-of-value-or-price-under-
monopoly-with-diagram-monopoly/13863 [Accessed 25 April 2018].