Does monopoly lead to a better outcome than perfect competition? Explain using diagrams where possible.
The essay will be marked on the basis of the following:
Understanding of the subject matter covered in the assessment task
Degree of analytical ability and critical insight using a range of sources and literature
Level of comprehension of relevant academic literature and business economic application
Presentation of data and analysis
Structure, presentation of material and referencing
Recommendations based upon findings
Answer:
Introduction
In the context of economics, market structures of nations highly contribute in the growth and success of business organizations. Monopoly, oligopoly, monopolistic competition and perfect competition are major types of market structures. Business organizations operate their businesses within one of these market structures. Along with this, all of these market structures have their unique characteristics. Business firm are obliged to follow some specific terms and conditions to operate their in any type of market structure. Moreover, this research essay would be useful to provide a brief introduction of these market structures. This essay would be helpful to describe that a monopoly market structure leads or not leads better outcomes than perfect competition market structure.
Monopoly V/s. Perfect Competition Market Structure
In economics, monopoly, oligopoly, duopoly, monopolistic competition and perfect competition market structures have their own importance. A monopoly is a market structure in which only a single seller produces and trades commodities in the marketplace. In an oligopoly, only few firms have the great majority of market shares. It is quite similar to monopoly. In an oligopoly instead of one seller, two or more seller has control on the entire market (Hall & Lieberman, 2007). Apart from this, in a monopolistic competition market structure, many sellers trade commodities in the market. This is a situation of imperfect completion because of sellers sell differentiate products. In a perfect competition market structure, many firms trade homogeneous products to create a situation of perfect competition in the markets.
On the other hand, in the area of economics, a perfect competition market structure can be considered an ideal market structure for the growth of the business organizations. In other words, it can be believed that, a perfect competition market structure is superior to other market structures. It leads to better outcomes than any other market structure (Sexton, 2015). Moreover, a monopoly market structure does not lead better results than perfect competition market structure. There are numerous reasons behind it. For case, the major reason is that in a monopoly market, only a firm dominates the entire market. The seller does not face any competition in this type of market structure. No other substitute of a product would be available in a monopoly market structure. As a consequence, the buyers are obliged to buy even a worst product in such type of market structure. It is because of they do not have other alternatives to choose. So, in a monopoly, a single seller enjoys the whole market. A monopoly market structure does not reveal the actual market image and position of an organization. The seller charge high price from customers; and as a consequence the seller enjoys high profits in this type of market structure (Mankiw &Taylor, 2006).
In addition to this, a perfect competition market structure leads to perfect completion in the marketplace. It is because of in this type of market, many producers offer identical commodities to their customers. Moreover, it leads to high competition in the market. It is because of the buyers have lots of substitutes to fulfill their requirements in a proper manner. The perfect competition reveals the actual image and position of business organizations. The main reason behind it is that buyers are not obliged to buy a specific product in this type of market structure. The producers cannot charge high prices in a perfect competition market structure. It is because of there are lots of substitutes are available in the marketplace (McEachern, 2017). The below diagram provides a graphical representation of both types of market structures.
The above graph is helpful to show that the price of monopoly market is higher than the perfect competition. The producer charges high price in monopoly market; and this is not good for the growth of firm in long run. In addition to this, perfect competition leads better outcomes than monopoly market. It contributes in the growth of business organizations in the long run. In other words, it can be said that, the seller enjoys short term profits in a monopoly market. But, business firms enjoy long run profits when they operate their businesses in the perfect competition market structure (Powell & Powell, 2016). The below graph is useful to demonstrate that only perfect completion may lead higher revenues for the success of business organizations.
On the other hand, price highly contributes in the success of a business organization. The seller charge more than the average cost of a product under a monopoly market structure. But, the sellers charge a genuine cost of a commodity in the perfect competition. A monopoly market leads to discrimination in the marketplace. It is because of a monopolist charges different price from different buyers. These characteristics of monopoly market cannot lead better outcomes. But, there is no price discrimination exists in the perfect competition; and consequently, it may lead better outcomes than monopoly structure (Simpson, 2010). Moreover, the below graph is helpful to show that how a perfect completion leads better outcome than a monopoly market structure:
In the above graph it is clearly visible that price (OP) in a monopoly market is greater than price (OP1) in perfect competition. The high price negatively influences the outputs of a monopolist in long term. In long run, the output (ON) of monopoly is lower than the output (ON1) of perfect competition. It means that a firm sells more outputs in the situation of perfect competition. But, a monopolist sells less output because of its higher prices (Stole, 2003). In this way, it is clear that, a perfect competition market plays a major role to enhance the revenues of business organizations in long run. Perfect competition also leads to superior outcomes than monopoly market structure.
Conclusion
On the basis of the above analysis, it can be said that, monopoly does not lead better results than perfect competition. Business firms mainly operate their businesses in a perfect competition market structure. Along with this, in today’s more competitive business era, lots of firms offer identical products in the marketplace. A Business organization can not accomplish its desired outcomes in a monopoly market. A monopolistic enjoys short term profits in a monopoly. So, it is recommended that, business organizations should operate their businesses in a perfect competition market structure to take advantages of high competition and enjoy profits in the long run.
References
Hall, R., & Lieberman, M. (2007). Microeconomics: Principles and Applications. USA: Cengage Learning.
Mankiw, N.G., & Taylor, M. P. (2006). Economics. USA: Cengage Learning EMEA.
McEachern, W.A. (2017). Contemporary Economics. USA: Cengage Learning.
Powell, R., & Powell, J. (2016). AQA A-level Economics, Book 2. UK: Hachette UK.
Sexton, R.L. (2015). Exploring Economics. USA: Cengage Learning.
Simpson, B.P. (2010). Two Theories of Monopoly and Competition: Implications and Applications. The Journal of Applied Business and Economics, 11(2), 139.
Stole, L. (2003). Price discrimination and imperfect competition. Handbook of industrial organization, 3, 34-47.
