Competition and Market Power (Essay Sample)

Imperfect Competition: Competition and Market Power
Name
Institution
Subject
Difference in Demand Curve
In a perfectly competitive market, the demand curve usually slopes downward reflecting that possible fact the quantity demand of a good decreases as the price increases. Price usually determined by the intersection of the market demand and the existing supply in the market (Robinson, 1933). The market supply determines the market price of goods produced. The existing firms are forced to charge to towards the equilibrium price of the existing markets or the consumers move their focus to purchasing other companies goods that have lower prices. A company’s demand curve is, therefore, equal to the market's equilibrium price (Greenhut, Norman & Hung, 1987). The demand curve also varies significantly from that of the existing market. The demand curve is horizontal and equal to equilibrium price while the demand curve for the market slopes downward. The horizontal nature of the curve indicates how the request of the goods is perfectly elastic. Any change in the prices of the goods by and the individual firm will lead to no sales or loss. Firms existing in this kind of market increase their market share by initiating strategies to offer lower priced goods than the existing competitors (Greenhut et al., 1987).
However, monopolies are faced with the extensive of market control of prices. The firms face negatively- sloped demand curves. The forced to lower their prices to enable them sell their larger quantities of produce. Decrease in price leads to the increase in the amount required. The shape of the demand curve, however, has several implications for firms in his market. The downsloping of the demand curve is due to the market power that a company has. They choose to raise or lower their prices without losing their customers. Unlike firms in the perfect competition market, the monopoly companies have the ability to dictate the price of their commodities. They have market power due to fewer competitors. The firms thus majorly focus on product differentiation or differences unrelated to price.
Companies dealing in electricity transmission are monopolies. Power regulation has changed rapidly. However, these changes only affect the companies that generate electricity. The transmission and distribution are not under serious consideration due to conventional reasons that claim the distribution and transmission are natural monopolies (Robinson, 1933). The industry built on the belief that economies of scale render the business a monopoly. The state’s law also allows the single only firm to supply power to most residents and other companies. Most of the power transmission companies are however politically produced monopolies. The government intervenes the formation of these firms to protect customers from the abuse that rise from exploitative monopolies. Few companies exist that transmit electricity from the country. . This industry characterized by the lack of competition, and it also experiences the absence of a viable substitute for the product. A single producer has control over both the production price and the market price of the goods produced.
A Monopoly
Google is an example of a monopoly. It started with a simple search engine but has managed to grow into the pursuit of every tech- related economy. The firm took off due to their innovative and power marketing techniques and managed to expand to offer other services like email, online data storage, GPS technology and many more (Robinson, 1933). Now it has control of more than 90 percent of the total market share. The company imposes control over the market via preferential placements. The company promotes its services at the top of its search results which has led it to favor its price comparison. It also dominates the global search market and can penalize competitors. The company has virtually unassailable the existing competitive advantage. They have the capacity to deploy the present strength beyond other confines of search to any other service of their choice. It suppresses new entrants, and their innovations become imperiled. Most monopoly firms maintain their power by forming barriers to entry into the market by other competitors by dealing in productions of larger economies of scale, predatory pricing or limiting pricing. Other firms also have perpetual ownership of the existing scarce resources and have developed a brand loyalty with their consumers.
TYPES OF FIRMS
The industry operates on the basis of products, geographical reach, and consumer targets. Each industry comprises of numerous firms. There exist four basics types of industry.
PERFECT COMPETITION
It is the industry infrastructure that comprises some firms that deal in the production of similar products or substitutes. Consumers also tend to have accurate and complete information regarding their prices (Joekes et al., 2008).
MONOPOLY
Pure monopoly industry comprises of a single firm that specializes in production or supply of a product or a service that has no close substitutes. The single player controls all the existing resources and technology and blocks competitors from entering the industry.
MONOPOLISTIC COMPETITION
This contest pertains to industries that have both the characteristics of competition and monopoly. The industry has many firms that offer subst...