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Economic Marketing Structure of Australia Question Answer

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Introduction - Exploring Market Structures: Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly

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Question 1
Compare the market structures of Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly under the following headings (About 150 words).
i. number of firms in the market
ii.
similarity of the products sold
iii.
barriers to entry

MARKET STRUCTURE

Basis

Perfect competition

Monopoly

Monopolistic competition

Oligopoly

Number of firms in market

There is a larger number of buyers and sellers in this market.

In this market, there is only one seller which has control over the entire market.

In monopolistic competition, there is a larger number of buyers and sellers.

There are only a few firms in this market.

The similarity of the products sold

The products in this market are all homogenous i.e identical to each other.

In a monopoly market, the products are unique and one of a kind.

Products in this market are similar but slightly different from each other.

In this market products are fairly similar. Price of products are interdependent.

Barriers to entry

In this market, there is free entry and exit, with no barriers.

Barriers to entry are very high.

Barriers to entry are very low.

In an oligopoly market, new firms find it difficult to establish themselves as there are lots of barriers to entry.

Question 2
Note: This Question Tests Your Understanding Of Your Reading Of The Recommended Text On Market Structures In Question 1.
Based On Your Understanding Of Each Market Structure Described In Question 1, State Which Market Structure You Think Each Of The Following Businesses Belong To.
Support Your Answer With An Explanation Of Which Characteristics Of The Market Structure Your Answer Displays. Answers With No Explanation Will Score Only Half The Marks.
I. Crown Casino Operating In Melbourne Or Star Casino Operating In Sydney Ii. Crown Casino Or Star Casino Operating In The Global Casino Market
Ii. A Fish And Chips Take Away Shop That Can Be Found In Most Suburbs.
V. Google Search "List Of Banks In Australia" To See How Many Banks Operate In Australia And Give Reasons To Support The Argument That The Banking Industry In Australia Has The Market Structure On An Oligopoly.
V. A Small Stall In One Of Melbourne/Sydney's Sunday Markets That Sells Souvenirs Such As Wallets, Caps, Tee-Shirts, Key Chains
Vi. A Hair Salon In Your Suburb That Makes The Effort To Provide A Service That Is "Just A Little Bit Better" Than Its Competitors Including Cleanliness, Efficiency, Friendly Service, Promptness,Knowing Customers By Name, Pleasant Experience And Of Course A Great Hair-
Do.
Ii. The Only Drive-In Cinema In Town.
Ii. The Liquor Retailing Industry In Australia (Refer To Attached Limited IBIS Report)

Ans 1: crown casino operating in Melbourne and star casino operating in Sydney both are dealing in providing the same product that is a casino, but is operating in different cities. Both companies are dealing in Monopolistic competition when firms deal in similar but different products which are not perfect substitutes (Nikaido, 2015). Her decision of one firm does not affect the other firm because both are dealing in different cities.

Ans 2: In this, both the crown and the star casinos are operating in the global market, both businesses belong to perfect competition as there are a larger number of buyers and sellers selling similar or homogenous products in the market (Azevedo and Gottlieb, 2017). Here buyers cannot distinguish between both the business as both are offering similar products.

Ans 3: This fish and chip that it could be found in most of the surplus is part of perfect competition. In perfect competition market firms deal with identical products (Nomidis, 2016). And as given in question fish and chip shop is found in most of the surplus, its product is similar to each other and have various substitutes.

Ans 4: The banking industry in Australia has the market structure of an oligopoly market, in this market, few firms are selling homogenous or different products (Yang et. al. 2017). Banks in Australia are dealing in the same but different products and there is a lot of interdependence among these banks. Change in rates or output decision of one bank affects the other bank.

Ans 5: A small stall in one of Melbourne/ Sydney's Sunday markets, is part of monopolistic competition, as the products which the stall is selling are similar to other but are not a perfect substitute (Nocco et. al. 2017). Other stalls selling souvenirs, may have similar products but the price and pattern may be different from its competitors.

Ans 6: hair salon in surplus is the perfect example of monopolistic competition, as discussed above in monopolistic competition products are the same but differentiate from another competitor (Parenti et. al. 2017). Here hair salons are providing the same service but each salon has its uniqueness, firms in monopolistic competition products are differentiated by their price and marketing strategies used by firms.

Ans 7: The only drive-in cinema in town is an example of a monopoly market, as in this market there is only one seller, selling a unique product (Yang, 2021). In this, there is only one drive-in cinema in the whole town, so here the owner of the cinema is a single seller who is enjoying a large portion of the market, and firms in this market are price makers.

Ans 8: liquor retail industry in Australia, is part of an oligopoly market as there are few sellers in the market, selling fairly similar products. In this market, firms are interdependent because they are dealing with similar products (Maisyarah, 2018). As mentioned above liquor retail industry in Australia is dealing with similar products but their prices are interdependent if one firm changes its price then other firms are forced to do the same.


Question 3

 Based on your answer to question 1, you will notice that barriers to entry in the market structures Perfect Competition and Monopoly are very different. Between these two market structures, which has the environment that is possible for a firm to make super-normalprofit and why?

Supernormal profit is calculated by deducting total costs including all fixed and variable costs by total revenue of the firm (Geltner et. al. 2022). There are no barriers to entry in perfect competition, there is free entry and exit in this market. And in a monopoly market, barriers to entry are very high, and entry of new firms in the monopoly market is very tough. In perfect competition, super normal profits can only be earned in the short run. In the long run, the firm will earn normal profits because here firms have perfect information and freedom of entry and exit (McDermott, 2015). On the other hand, a firm dealing in monopoly market barriers to entry are very high for a new firm to enter the market. In a monopoly, the market firm can gain supernormal profit in the long and short run because the seller in this market has all control over the price which is fixed of the product (Yongli et. al. 2018). Monopoly firms are saved from the competition by barriers to entry and help the firms to generate a high level of supernormal profits.


Question 4
Briefly explain "Economies of Scale" and how it can give rise to a market having a "Natural Monopoly." (About 100 words)

Economies of scale are kind of cost advantages that a firm experience when its production become fully efficient, and costs are ready to be spread over a large number of goods (CFI, 2022). Economies of scale depend on the size of the business as larger the business more will be the cost savings. A natural monopoly exists typically because of the huge start-up cost or strong economies of scale for conducting a business in a particular industry. Economies of scale help in giving a rise to natural monopoly as firms here are the only provider of products and firms are producing efficiently, which results in a rise of economies of scale of firms (Alhadeff, 2020).


Question 5
Explain the term "Non-price competition" by giving two examples of how firms engage in this and identify which two market structures experience it the most. (About 80 words)

Examples are:

Loyalty programs – most firms in the market offer loyalty cards to capture the market attention and for customer retention. These loyalty cards provide incentives to the customer on purchase from a specific firm.

Unique selling points – all the firms with unique selling points are focused on providing products according to consumers' pReferences like sugar-free products, and gluten-free products (Masterclass, 2022). All these are a result of focused differentiation.

Perfect competition and monopolistic competition are the two market which has experienced nonprice competition.

Question 6

The above are diagrams of demand curves facing two firms. If both firms decreased price, observe the increase in quantity demanded/sold for each firm. Alternatively if they increased price, observe the decrease in quantity demanded/sold for each firm.

Required:
Based on your observation above and your understanding of market structures, match each diagram to either a Monopolistic Competition firm or a Monopoly firm and explain your choice based on the specific characterstic/s of the Monopolistic Competition and Monopoly market structures.

Diagram A is of a monopolistic market and diagram B is of a monopoly market. Monopolistic competition refers to the market where firms sell similar but different products and with a high level of competition. The competitive nature of this market allows firms to generate higher profits by being different and better from other competitive firms (Bertoletti and Etro, 2017). Monopolistic competition has several different characteristics that separate it from other market structures:

Different products – firms producing products are similar but different from each other, this difference may be in packaging, labeling, depending on the needs of the customer, etc.

Free entry and exit in the market – in this market firms are allowed to enter by selling goods by experiencing a few barriers like competition, and free exit means firms can exit the market when they are not experiencing losses.

Competition – there are lots of companies in the market producing similar products, so it's quite difficult to retain the customer.

Profits – In monopolistic competition firms earn extraordinary profits in the short run. This is because the customer is always willing to try new products or brands, and this fact benefits all the new firms with extraordinary profits.

A monopoly market is a market where a single seller exercises control over the whole market. all the output and price are controlled by the single seller company. The company has the freedom to alter the prices depending on the demand without thinking about the competitors (Hussain et. al. 2020). In this market products are unique and one of a kind and barriers to entry are very high. A monopoly market is identified by its certain characteristics

Only single seller – in this market there is one seller who produces all the output for goods and services, the entire market depends on a single seller.

High barriers to entry – monopoly markets have high barriers to entry, for example, patents, high startup costs, legality, etc make it difficult for new entrants to enter the market.

Profit maximization – firms in a monopoly market enjoy no competition that helps the firm to maximize profits. Firns can charge the price they want to charge and can enjoy profit on their own.

Reference

Alhadeff, D.A., 2020. Monopoly and competition in banking. InMonopoly and Competition in Banking. University of California Press.

Azevedo, E.M. and Gottlieb, D., 2017. Perfect competition in markets with adverse selection.Econometrica,85(1), pp.67-105.

Bertoletti, P. and Etro, F., 2017. Monopolistic competition when income matters.The Economic Journal,127(603), pp.1217-1243.

CFI, 2022. Economies of Scale. [Online]. Available through :< https://corporatefinanceinstitute.com/resources/knowledge/economics/economies-of-scale/>.

Geltner, D., Kumar, A. and Van de Minne, A.M., 2022. Is there super-normal profit in real estate development? Journal of Real Estate Research, pp.1-28.

Hussain, J., Pan, Y., Ali, G. and Xiaofang, Y., 2020. Pricing behavior of monopoly market with the implementation of green technology decision under emission reduction subsidy policy.Science of the Total Environment,709, p.136110.

Maisyarah, R., 2018. Analysis of the Determinants Competition Oligopoly Market Telecommunication Industry in Indonesia.KnE Social Sciences, pp.760-770.

Masterclass, 2022. Non price competition: what is non price competition? [Online]. Available through :< https://www.masterclass.com/articles/non-price-competition>.

McDermott, J.F., 2015. Perfect competition, methodologically contemplated.Journal of Post Keynesian Economics,37(4), pp.687-703.

Nikaido, H., 2015.Monopolistic Competition and Effective Demand.(PSME-6). Princeton University Press.

Nocco, A., Ottaviano, G.I. and Salto, M., 2017. Monopolistic competition and optimum product selection: Why and how heterogeneity matters.Research in Economics,71(4), pp.704-717.

Nomidis, D., 2016. A Revision of the Theory of Perfect Competition and of Value.Available at SSRN 2875582.

Parenti, M., Ushchev, P. and Thisse, J.F., 2017. Toward a theory of monopolistic competition.Journal of Economic Theory,167, pp.86-115.

Yang, K.H., 2021. Efficient demands in a multi-product monopoly.Journal of Economic Theory,197, p.105330.

Yang, L., Ng, C.T. and Ni, Y., 2017. Flexible capacity strategy in an asymmetric oligopoly market with competition and demand uncertainty.Naval Research Logistics (NRL),64(2), pp.117-138.

Yongli, L., Chao, L. and ChuangAn, W., 2018. The value of network externality in a monopoly market.Social Sci. Electron. Publishing,17(32), p.32.

Bibliography

Askar, S.S., 2013. On complex dynamics of monopoly market.Economic Modelling,31, pp.586-589.

Dukes, A., 2004. The adverstising market in a product oligopoly.The Journal of Industrial Economics,52(3), pp.327-348.

Farsi, M., Fetz, A. and Filippini, M., 2007. Economies of scale and scope in local public transportation.Journal of Transport Economics and Policy (JTEP),41(3), pp.345-361.

Feenstra, R. and Kee, H.L., 2008. Export variety and country productivity: Estimating the monopolistic competition model with endogenous productivity.Journal of international Economics,74(2), pp.500-518.

Finn, M.G., 2000. Perfect competition and the effects of energy price increases on economic activity.Journal of Money, Credit and banking, pp.400-416.

Khan, M., 2007. Perfect competition.

Mazzeo, M.J., 2002. Product choice and oligopoly market structure.RAND Journal of Economics, pp.221-242.

Murugkar, M., Ramaswami, B. and Shelar, M., 2007. Competition and monopoly in Indian cotton seed market.Economic and Political weekly, pp.3781-3789.

Neary, J.P., 2004. Monopolistic competition and international trade theory.The monopolistic competition revolution in retrospect,13(159), p.317.

Symeonidis, G., 2000. Price Competition, Non?Price Competition and Market Structure: Theory and Evidence from the UK.Economica,67(267), pp.437-456.

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