Discuss about the Market structures like Monopoly, Oligopoly and Monopolistic competition in Australia.
Australia is experiencing the influence that existing market structure have on its economy. Today, there are scores of firms which have characteristics of oligopoly, duopoly, monopoly and monopolistic competition. Therefore, before understanding how their operations are diversified in the economy, it is vital to explore their existence. First, a monopoly alludes to a market structure that has a dominant market producer who sets the prices of goods and services thus making huge profits both in the short run and long run. The Australian market is particularly has a strong presence of monopoly characteristics especially in the service industry, for instance banking and telecommunication where by four dominant firms control most a huge proportion of the market.
Oligopoly is based on having a smaller number of firms exhibiting market dominance as dictated by tough restrictions to entry into the industry. One common difference that oligopolies have as compared to other firms is that they have a kinked demand curve which alludes to a tendency to have common prices for greater achievement of output. Monopolistic competition is centered on the presence of many firms but having differentiated products in terms of branding, sorting and offering after sales services. Advertising is also very much intensified in order to have a greater market share. A growing number of these market structures in both the product and service industry in Australia has raised the concern of the government as well as the consumer protection societies whereby firms are taking the advantage of their strong presence to further exploitation. The government is concerned that such closer market alliances will jeopardize quality as well as market stability which will create chaos and weaken the economy in the long run.
Market structures in Australia
The oligopolistic competition for instance is structured in a way that only a smaller number of firms have control of the market. Products in this market particularly have a high degree of differentiation. Therefore, firms are able to establish an edge over others in terms of making collusion agreements whereby certain firms will restructure to form a single most dominant firm (Daepali 2015). While this points closer to monopoly, it still signifies oligopolistic competition because there are more of such firms even when collusion is undertaken. It also alludes to a market duopoly which is an offshoot of the oligopolistic structure and works clearly along the parent structure but the only difference is the presence of only two dominant firms. In essence, firms compete for an increase in their output. Therefore, a decision made by a single firm with regard to demand and supply of the products will influence the rest of the firms to adopt the same measure. More so, the concept of elasticity is more pronounced on the part of the producers more than it does on the consumers. Producers such as Dunlop, Bridgestone and Dulux are able to respond sharply to any changes in the demand and supply of a product because it determines the volume of sales that they can realize (Kitney & White 2013). These firms exhibit oligopolies chiefly because of their similarity in the products sold. More so, there are greater efforts to increase the aggregate supply while aggregate demand is established through undertaking advertising as well as tailor-made branding to ignite the interests of the consumers as well.
A monopolistic primarily has a greater output control in the market because he is able to determine the prices. It means that they are able to maximize output both in the short run and the in the long run as well. However, three determinants have to be in play. First, Marginal Revenue (MR), Marginal cost (MC) and lastly Average Revenue (AR). Maximization of output is determined by these three aspects. Their average revenue curve is synonymous to their market demand. Marginal revenue and quantity demanded relationship is therefore established in a manner that a negative MR indicates revenue is decreasing along with quantity while a positive MR shows an increasing revenue along with the quantity (Simshauser and Whish-Wilson 2017). More often, the objective to maximize on the output is indicated by a firm’s decision to produce the output at a point where MC equals MR in which the revenue is established as a function of the output level.
The case for monopolistic competition points to the existence of industries that have similar products but clearly differentiated in terms of branding and sorting. The fact that there is similarity in terms of what the firm’s sale, implies that activities such as advertising are relied on. More so, the concept of demand elasticity comes into play. Kollmorgen (2016) establishes that, consumers are very sensitive about the market changes in prices and so are more likely to resort to firms with cheaper prices. Competition can therefore be based on price changes as well.
The vast manner of the Australian economy and hence its market is perhaps reflected through the presence of monopolies. When the top three sectors in Australia are compared with those in the United States, it reveals wider differences. While the US has a market share of 26%, 31% and 10% in the commercial banking, supermarkets and Liquor respectively, Australia has 94%, 91% and 78% for the same respectively (Leigh & Trigs 2017). It indicates the strong monopoly presence. The Australian government’s main concern is the prevalence of the monopolistic competition which is bound to increase market returns on capital as well as market share but the downturn is that it stifles economic growth. Monopolies kill competition as well as a huge deterrent to diversification. The market can only realize its full potential when it is diversified.
In essence, while concentration of firms as established through oligopoly, monopoly, monopolistic and duopoly markets have not been solely responsible for the rising inequality in Australia, it still indicates their association as well. The policy response should be radical. That is, consumer rip-offs and anti-competitive conduct should be stepped up. Secondly, the Australian Competition and Consumer Commission should be allocated additional revenue so that it prioritizes investigations of such conduct for protection of the disadvantaged Australians. This will be important for ensuring that the market responds only to the needs of the consumers. The government will also promote consumer protection from unscrupulous business people.
Leigh, A., & Triggs, A. 2017. It's Time To Put Markets Ahead Of Monopolies, Huffington Post. Retrieved from: https://www.huffingtonpost.com.au/andrew-leigh/its-time-to-put-markets-ahead-of-monopolies/
Kitney, D., & White, A. 2013. We are an oligopoly economy: Robb. Australian Business Review. Retrieved from: https://www.theaustralian.com.au/business/companies/we-are-an-oligopoly-economy-robb/news-story/606fcf2f0e789689d39fd40f19b8a1e9
Daepali, P. 2015. Monopoly in a Perfectly Competitive Market. Retrieved from: https://www.economicsdiscussion.net/monopoly/monopoly-in-a-perfectly-competitive-market-with-diagram/16454
Kollmorgen, A. 2016. Squeezing out the competition. Marketshare Australia. https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/market-concentration
Simshauser, P. and Whish-Wilson, P., 2017. Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland. Energy Economics, 62, pp. 92-103.