Monopoly Vs. Competition: Understanding The Differences

• When all the factors influencing demand are kept constant, as the price for goods increases, the demand falls and vice versa. Hence, the price and quantity for the demand of a good are inversely proportional. Therefore, the demand curve is downward sloping. Similarly, if all the factors remain the same, if the price of a good increases, the supply also rises and vice versa. Hence, the supply curve is upward sloping. The intersection of the forces of demand and supply produces the equilibrium price and the equilibrium quantity². For Dell notebook computers, the demand is elastic, hence the demand curve will be less steep.

• The article reports that laptops can cause damage to the back and neck from looking down at a screen for long periods. Consumers may be concerned about the negative health effects and as a result, there would be a decrease in demand. As a result of the fall in demand, the equilibrium price, as well as the equilibrium quantity, will decrease as indicated by the blue lines with the supply curve remaining the same.

• If there are more new brands of notebook computers that are now available to consumers, it indicates that the supply of the Dell notebooks has increased. As a result, the supply curve will shift entirely towards its right since there is nil changes in the price of the Dell notebooks. The entire supply curve will shift towards its right as indicated by the orange lines. If the change was in the prices of the Dell notebooks, then there would have been a movement along the supply curve. But in this case, the price has not changed. As a result, the equilibrium price will fall whereas the equilibrium quantity will rise.

•  If new technology enables computers to be made at a lower cost, it implies that the input costs of the firms decrease. If input costs decrease, it increases the rate of profit margin. If the profit margin increases, it leads to an increase in the supply. The new technology will make it cheaper for Dell to manufacture computers. The market price will decrease because the demand for lower-priced computers will increase. The number of computers would also increase because production costs are lower.

• The purpose of a price ceiling is to set a maximum price that can be charged for a good or service. This took place in the United States during World War II when the Office of Price Administration put ceilings on many goods and services including gasoline, steel, and new cars⁵. This created an artificial shortage because supply could not meet demand. A price ceiling is imposed by the government of the country when the government deems fit to impose a control on the price of a commodity. When there is a need to limit the price of the product beyond a certain limit, the government imposes a price ceiling. A price ceiling is also known as a price cap. When the consumers or the citizens of the country are facing exorbitant prices for a good, the government interferes in the economy to safeguard its citizens from the prohibitively expensive commodities or services. The price ceiling indicates the highest amount which can be charged for the product and the price cannot surge beyond that limit. If the price ceiling that is set is a binding one, then, there is a situation where there is excess demand along with a shortage of supply of the product. This mainly happens because, since the prices are set at a lower limit, therefore, the producers are not willing to sell much at this lower limit, whereas, the consumers are receiving the product at the lower price, hence, they are willing to buy more of the product at the lower price. Therefore, a loss is created known as the deadweight loss. If the price ceiling has to be effective, then the price ceiling should be set below the level of the equilibrium price of the economy. If the price ceiling is effective, then the equilibrium price falls increasing the quantity demand and at the same time, a decrease in the quantity supplied⁸. Moreover, a deadweight loss is created in an effective price ceiling. 

• The price floor is a government-mandated minimum price for a product. The purpose of this is to protect the interests of farmers and producers. The price floor is also imposed by the government of the country. It is a limit that is imposed as to the level beyond which the price cannot fall⁶. The classic incidence of price floor is the minimum wage which cannot fall beyond a certain level. The minimum wage was started with the view that if labor is working throughout the day, they should be able to afford a minimum basic standard of living and hence should be paid a basic minimum wage. The price floor is also known as a support price because they support the price from falling beyond a certain limit. For a price flooring to be effective, the government interferes into the economy and purchases the product so that the demand for the product remains high by keeping the price levels also high. There have been many examples of price floors around the world, for example, there have been many countries that have sanctioned laws to create agricultural price floors. The farm prices of the agricultural produce, thereby the income of the farmers fluctuate widely. Therefore, even if the price of agricultural produce is average, it may suddenly fall. This is the sole reason for introducing price floors to cushion the farmers from such fluctuating swings. Since the price set during a price flooring is above the equilibrium price, therefore, the producers are willing to sell more at the high price and on the other hand, the consumers are not willing to buy products at that high level. Therefore, a situation of excess supply is created.

• Perfect competition is a form of a market that is characterized by a large number of sellers and a large number of buyers buying and selling a homogeneous product¹. The two invisible forces of demand and supply regulate the equilibrium price and quantity of the product. For example, if the customer wants to buy a ballpoint pen, he may go to the market to buy the pen and will be able to buy it at RM 99.50. Any sellers selling at a slightly higher cost will not get any customers and any sellers selling at a slightly lower cost will fetch all the customers. Therefore, perfect competition eliminates all rivalry. The sellers of the perfect competition market are said to be price-takers since they take the price as a set price which is determined by the forces of demand and supply. The characteristics are:
• A large number of buyers and sellers.
• Homogeneous product.
• No discrimination
• Perfect knowledge.
• Free entry and exit of firms.
• Perfect mobility.
• Profit maximization.
• No advertisement cost.
• No transport cost.

On the other hand, a monopoly is a market structure that is made distinctive by the characterization of a single seller.  The product sold in the market is unique since there is no other seller in the market who sells this product. In this type of market structure, the seller is the sole proprietor of the business in the industry and thereby has no competitors leading to a zero competition market. A monopolist is said to be the price-maker since he sets the price of the product, unlike the competitive market⁷. This market was defined as the market with the ‘absence of competition’ by Irving Fisher. The characteristics of this market are as follows:

• Profit maximizer.
• Price maker.
• High barriers to entry.
• Single seller.
• Price discrimination: the monopolist can change the equilibrium price and quantity of the product as per the elasticity of the product and the income level of the consumers.

• An oligopoly is a market with only a few producers or sellers. Generally, there are only a few companies that dominate the market⁴. The firms have considerable control over the price and other aspects of the industry. This is because the company's customers have few choices for where to buy goods and services. Yet, the market powers are unable to influence the market on their own. The characteristics of an oligopoly market are:
• A few markets with a large market share.
• High barriers to entry
• Interdependence: A replica situation of 'prisoner's dilemma' is observed here. Any strategy taken by a firm affects the strategies of other firms in the industry.
• Each market in an oligopoly has less market power in its own right: Each firm has less power since all the firms are equally powerful. Any firm changing its decision from the mainstream, will either suffer a lot or gain a lot from its decision.
• Higher prices than the perfect competition: In the perfect competition market, the prices are set just above the marginal cost where the profit margin rate is very low, but in an oligopoly market, the prices are set at a higher level so that the profit margin is high.
• More efficient: An oligopoly market gains largely from the economies of scale since it can produce at a much lower cost. The existing firms have a fixed cost and if there are new firms that would want to enter, they would have to incur high entry costs.

References 

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