Analysis
A monopoly is when a single business or other organization has complete command and control over a market. It does not mean that they are the only competitor in play. However, it does mean that the single organization in question is not in any way threatened or competed with given the conditions of the market in question. Generally, monopolies are illegal. This is due to the Sherman Anti-Trust Act that was passed in 1890. That law can be used as a means to break up companies that are seen as monopolies. Precisely this was done with Standard Oil Company and American Tobacco. It was done with AT&T and was almost done with Microsoft, with the latter struck down on appeal. Microsoft has always had competition, but it remains rather small for most markets such as operating systems and productivity software. Indeed, the Office productivity suite and Microsoft Windows are not the only options out there but the market share they command is massive. On the other hand, Microsoft faces a ton of competition from Nintendo and Sony when it comes to the game console market. When it comes to efficiency, monopolies are almost always considered to be allocatively inefficient because they are able to pick a price point that is higher than the marginal cost. Despite this inefficiency, monopolies are able to manipulate the market to get the profit they feel they need. They do this instead of maximizing output or keeping costs down (Pettinger, 2017; Investopedia, 2017).
The term “oligopoly” stems from the same root words and meaning as oligarchy, in that while there is not a monopoly in play, the amount of “players” in the market is rather small. Rather than one big company within a market, there is instead a small number of companies and supplies that dominate the market. A good example would be the cell phone market in the United States which is dominated by Sprint, Verizon, T-Mobile and AT&T. Another example would be British Airways and Air France. They latter pair just mentioned do have some small airlines that compete with them. However, no other airline really replicates or replaces what those two larger firms can do. There is competition present but it is present on a lesser basis. Indeed, the major thing to measure and look at when it comes to oligopolies is what is known as concentration ratio. Just like with monopolies, although to a lesser extent, oligopolies are typically inefficient and for much the same reason. Indeed, a typical oligopoly will not produce items in the way that is cheapest and most efficient and they will not produce the “proper” amount of product based on what society wants. Given that, they are neither allocatively nor productively efficient. Profits are typically quite nice within oligopoly companies despite this lack of efficiency. Beyond that, there have been instances, both legal and illegal, where firms in an oligopoly have acted in concert and collusion so as to shift prices to where they are desired and wanted. A legal example would be OPEC. An illegal example would be if the aforementioned cellular phone providers (e.g. Sprint, Verizon, etc.) were doing the same thing (Economics Online, 2017; Investopedia, 2017).
In stark contrast to what is seen by oligopolies and monopolies, perfect competition firms are all about efficiency and squeezing out the most amount of productivity possible. Indeed, prices and profits are at a premium because of the competition so excess profit margins are not commonly seen. On the other hand, efficiency and creating the right amount of product relative to the supply that is needed and demanded by the public is much more in tune with reality so that the maximum amount of profit is garnered but the public is not left wanting for product. Something else that is common and normal for perfect competition is that short-run time horizons can reveal and lead to inefficiency while the opposite is typically seen in the long-term. Even if there are short-term blips where outcomes are less than optimal, things typically turn out fine over the long-term presuming that the firm is able to adjust and plan properly over the longer time horizon. A great example of perfect competition would be retail. While there are indeed some rather big names in retail and/or grocery, those names are not big enough to control the market on their own and their overall margins are not that strong. The companies that could be pointed to in the United States include Kroger, Target, Wal-Mart and others. Even Amazon could be included in this discussion given the significant amount of overlap that occurs nowadays between brick and mortar stores and online stores. Regardless, there are a lot of firms doing the same thing, albeit in different ways, and the competition is very strong in situations like this (Amos, 2017).
The fourth and final market structure is one that is a bit of a blend between the other types, and that would be monopolistic competition. This is an imperfect and different form of competition in that the products sold in these markets are not exact or precise substitutes. As such, this is why a perfect competition scenario is not possible. As far as efficiency, it is basically impossible for a monopolistic competition situation to ever be efficient. This is because the marginal cost of a product is always lower than the price of the good, without fail. For this reason alone, there is no possibility of efficiency when it comes to such markets. When it comes to profits, monopolistic competition and monopoly situations are quite similar. One of the beauties of monopolistic competition is that there are few (if any) barriers to entering or exiting the market. Unlike with monopolies or oligopolies, making entry into a monopolistic competition market can be done with relative ease. A good example of a monopolistic competition situation would be fine clothing, jewelry and so forth. Even if Nikes and Under Armour shoes are very much the same, they are also different in many respects and this relates to design, price point and other things. Cars would be another example. A Yugo and a Ferrari are both technically cars but they are different in so many ways beyond and the people that did shop for a Yugo when they were made and the people that have ever shopped for a Ferrari do not run in the same economic or social circles (Economics Online, 2017).
Conclusion
Not all of the industries and firms out there fit neatly into only one of the four market structures discussed throughout this report. However, most firms do even if some context and explanation has to be provided. There are pros and cons to every market structure type and there is not really a case to get rid of any of them, including monopolies, as there is a time and a place for all of them. Even so, there can be harm done when there is little to no competition just like how competition itself has negative consequences on the firms that cannot or will not do what it takes to compete and survive. Even with all of that, it is clear that there are some necessary evils that exist and they manifest themselves every day in one form or another. Only time will tell as to what market structures rise and fall.
References
Amos, (2017). AmosWEB is Economics: Encyclonomic WEB*pedia. [online] Amosweb.com. Available at: http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=perfect+competition,+efficiency [Accessed 20 Jan. 2017].
Economics Online, (2017). Monopolistic competition. [online] Economicsonline.co.uk. Available at: http://www.economicsonline.co.uk/Business_economics/Monopolistic_competition.html [Accessed 20 Jan. 2017].
Economics Online, (2017). Oligopoly. [online] Economicsonline.co.uk. Available at: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html [Accessed 20 Jan. 2017].
Investopedia, (2017). Monopoly. [online] Investopedia. Available at: http://www.investopedia.com/terms/m/monopoly.asp [Accessed 20 Jan. 2017].
Investopedia, (2017). Oligopoly. [online] Investopedia. Available at: http://www.investopedia.com/terms/o/oligopoly.asp?ad=dirN&qo=investopediaSiteSearch&qsrc=0&o=40186 [Accessed 20 Jan. 2017].
Pettinger, T. (2017). Productive vs allocative efficiency | Economics Help. [online] Economicshelp.org. Available at: http://www.economicshelp.org/blog/2412/economics/productive-vs-allocative-efficiency/ [Accessed 20 Jan. 2017].
