Market Structures Analysis Market Competitiveness

Question: Describe about the Market Structures Analysis for Market Competitiveness. Answer: Introduction Market structure indicates the number of firms in a market, their distribution, and the products and services they produce which collectively determines the nature and degree of competition within the market. The markets competitiveness is determined by such factors as the number and nature of buyers and sellers, the products or services offered, market entry and exit conditions and the economies of scale. The forms of structures to be considered in this paper are competitive, monopoly, monopolistic and oligopolistic structures which shall be discussed with reference to various examples of businesses in Australia that represent each of the structures. Further, the businesses profit maximization or cost minimization techniques shall be analyzed before finalizing with a discussion on the performance of allocative efficiency in each of the markets and the role of government intervention in the markets. Business Market Structures Monopoly A perfect example of a monopoly is Telestra Corporation Limited which has fully dominated the telecommunication industry in Australia by providing unique services and products which range from internet access, TV, communication network and other entertainment services. The monopoly is characterized by extreme barriers to entry leaving Telstra with a sway on the prices of its services. Oligopoly Oligopolies are characterized by the existence of a few large firms in the market that compete against each other to sell similar or differentiated goods. An example of an oligopoly in Australia is the building and construction industry. The construction industry is composed of three sectors: engineering, non-residential and residential building. Although there are many small construction firms, there exist large firms which compete against each other. The industry has prequalification requirements that bring about entry restrictions to smaller firms and therefore leaves the large firms at play in some sectors of the industry especially engineering and part of non-residential building. The large firms, therefore, remain competing against each other and watching each others actions which leave them with the power to alter prices in response to the competitors actions. These firms may use advertising to gain a competitive edge. (De Valence, 2007) Monopolistic A monopolistic market is dominated by a limited number of large firms selling similar products. An example is the Coca-Cola Company and Pepsi. These companies mainly focus on branding, packaging, and display to establish their unique brands that distinguish them from the competitors. Advertising is essential, and consumer loyalties are capitalized on. Competitive A competitive market is characterized by many small firms which sell similar products and services. These firms have no control over the prices of their commodities, and there exist no seller- buyer discriminations i.e. the buyers buy from any seller and the sellers sell to any buyer. There are zero barriers to entry and exit from this market, and prices change freely in accordance with demand and supply. Profit Maximization The maximization of profits is an objective for all businesses. Regardless of any firms market structure, it is important that marginal revenue be equal to marginal cost in order to determine a profit maximizing level of the firms output. In the construction industry, unwanted costs arising from claims and overruns incurred by extended stays on the site are avoided by use of exculpatory clauses in contracts that limit the contractors liability in certain circumstances and further adopting measures to improve productivity e.g. adoption of technology to increase volume and quality of work. The Coca-Cola Companys vision is to achieve long-term sustainable growth by focusing on its brands, distribution systems and financial stamina. The company also aims at maximizing shareholder returns by creating value for the consumers and its bottlers through comprehensive business strategies. To remain in the limelight, the company relies on brand development strategy to maintain a solid brand image that commands loyalty. Telestra on the other hand put great focus on customer loyalty and strong cash flows and integration with other smaller businesses that generate profits for the company (Newman, 2016). Allocative Efficiency in the Markets Allocative efficiency refers to production that represents consumer preferences. In a competitive market, firms produce goods where the price of one unit equals the Marginal Cost (MC) for the last unit. This means that the firms produce quantities that are in tandem with market demands at the lowest prices (Pettinger, 2012). In a monopoly, firms produce quantities of goods where the price is greater than the MC. This means that the quantity is low compared to the demand and therefore prices for goods are usually higher. Similarly, monopolistic firms behave in a manner similar to firms in a monopoly. Monopolistic firms profit maximization production is achieved when the marginal revenue equals marginal costs. Therefore, manufacturers in monopolistic markets supply goods below their manufacturing capacity which mean that the quantity will be less than the demand. Consumers thus pay higher prices for goods. Oligopolies too do not produce right quantities and also inflate prices (Berry-Stlzlea, Weissb, and Wendec, 2011). Role of Government intervention The government is known to intervene in the economy through policies governing various aspects. Intervention in the marketplace is no exception and therefore the government governs the market structures too to some extent. For instance, in a monopoly, firms have absolute power to set prices for their products. The government plays an important role in setting price ceilings which prevent the firms from overcharging consumers and forcing them to purchase the products due to the absence of substituted goods. Further, in an oligopoly and monopolistic market, advertisement plays a major role in differentiating the products of one firm from another. The governments intervention is, therefore, necessary as it cautions against making false and misleading statements to consumers about products or services. This crucial role is played by the Competition and Consumer Protection Act (2010) (cth) in conjunction with the Australian Competition and Consumer Commission. In the same breadth, the government plays an important role in safeguarding the competitors interests by outlawing unfair competition practices. This serves to level the playing ground for a competitive market. It is, therefore, my considered view that government intervention in the market is necessary. After all, the social contract theory has it that it is the duty of the government to safeguard the interests of its subjects. In this case, the duty of the government is to protect both the interests of consumers and the interests of the firms, producers or companies which may be disadvantaged in the event that government intervention was absent. References Berry-Stlzlea, T., Weissb, M. and Wendec, S. (2011).Market Structure, Efficiency, and Performance in the European Property-Liability Insurance Industry. 1st ed. 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