Perfect Competition and Monopolistic Industries
There are certain characteristics that are prevalent in industries with perfect competition. There is perfect knowledge of information amongst the consumers, there are many buyers and many sellers and a high variety of goods available to the consumers. The prices of the products are therefore affordable. The food retailing industry operates in perfect competition. There are no barriers to entry for the sellers because the businesses are usually operated using a franchising system. Traders can open stores once they fulfil all the legal and financial requirements. There requirements are manageable.
There are restaurant businesses that are set all over the country with the major companies being McDonalds, Burger King and Pizza hut. These companies specialize in the quality of customer service since they know that their customers can simply move to other companies if they are not satisfied with the service. The innovative steps taken by a company like McDonald show the volatility of the market and the need to create customer loyalty and a strong brand. In various countries where the company has opened restaurants, the firm has concentrated on a strategy of customization instead of standardization where the company adjusts its menu to incorporate local tastes.
The company has also chosen to work with local suppliers in order to save on certain costs. The competition is stiff and the customer has several options to choose from. It is not a monopoly industry and any company that insists of following practices that are not appealing will find itself having minimal customers. The food retailing industry is different from the health industry where there are certain monopolies.
In an industry that has monopoly, there are many buyers however the
Sellers are few or there is only one seller. There are various barriers to trade that exist in a monopolistic market structure such as legal entry barriers and prohibitive costs of set-up. The monopoly therefore has the ability and power to set the prices of its products in the market. There is also no incentive to increase efficiency as the profits are guaranteed. The government policies have led to the creation of the United States Postal Service Monopoly.
The government owned corporation is the only institution allowed to deliver mails to homes. For express or urgent mail which is usually delivered the next day, the government has allowed competition. In this section, the USPS market share reduced drastically from 45% in the 1970s to only 6% in 2001 because the consumers preferred to use service providers such as FedEx and UPS (Geddes, 2005). These third party companies have been able to provide a superior service to the consumers more than the government.
There are several disadvantages in having monopolies in that it leads to inefficiency. The customers end up paying higher amounts for service that is below acceptable service standards. There have been calls for the government to privatise the industry in order for consumers to enjoy better services and higher service standards. The USPS prices or rates on home delivery mails are manageable however it can be lower once competition is allowed to set in. The price that is set by the company is fixed and not subject to market competition. Furthermore the USPS is exempt from taxation and is able to borrow from the Treasury. These factors can cause the company not to be innovative or efficient.
There are certain crucial industries which may be too sensitive to leave to private investors which may have to be controlled by the government such as the electricity and water sectors If the private investors are left to control the industry, the consumers will suffer.
Geddes, R. (2005) Reform of the U.S. Postal Service. Journal of Economic
Perspectives 12 (3): 217–32.
