Perfect Competition or Monopoly?
Notably ,there exist various market structures inclusive of monopoly, oligopoly ,imperfect competition and perfect competition .Primarily, monopoly implies an industry or market with only one major service or product provider. Characteristically, monopolies have large entry barriers, produce or service lacks close substitute and makes supernormal profits .Noteworthy ,monopolistic firms make supernormal profits which enables them to enjoy large economies of scale and venture into research and development initiatives. Monopolies enjoy lack of competition due to natural entry barriers such as massive capital intensity, infrastructure which discourage competition from small upcoming firms(Economics help, n.d)
Further, through large economies of scale, monopolies have averagely low production costs as compared to other market structures like perfect competition. However, monopolies have the ability to restrict its production thereby affecting the output levels .Noteworthy, monopolies tend to control consumer surplus which is disadvantageous to consumers hence its undesirability(Economic Online ,n .d)Furthermore ,monopolies have less output levels as compared to perfect competition thus making perfect competition more desirable than monopoly(Economic Discussion, n .d)In a monopoly ,the demand curve is inelastic with a downward sloping supply curve.
Monopolies especially global monopolies are a huge revenue earner for their economies(Economics Online, n.d)Monopolies are considered dynamically efficiency as compared to perfect competitive firms because monopolies are better placed with capital intensity thus the ability to support technological advances through research and development.
However ,monopolies are considered allocative and productively inefficient thus making it undesirable .In addition ,lack of competition denied consumers variety to choose from due to the fact that monopolies are price setters .Moreover, monopolies product or service quality is likely to stagnate due to lack of competition .Also, abuse of monopoly power could lead to exploitation of consumers by monopolies hence the need for government Intervention.
According to Neoclassic economists, perfect competitive market has more desirable outcomes as compared to any other market structure in the world(Economics Online ,n .d)Primarily perfect competition lacks externalities.Typically, perfect competition is also known as pure competition. Theoretically, perfectly competitive market is regarded as the ideal market structure. Characteristically, perfective competition has many firms producing the same product or service. Further the firms in this market structure are considered price takers rather than price setters like monopolies. Also, perfect competition experiences free flow of information between consumers and producers.
In addition, there exist many buyers and producer firms in a perfect competition .Moreover, there are no entry and exit barriers into a perfect competition Market structure or industry. According to some economic theorists, perfect competition is ideal since there free entry of firms into the market thereby offering competitive goods and services to consumers. Further, competition is healthy for economic growth. The existence of many sellers accords consumers a wide choice of goods and services. Additionally, in a perfect competition ,consumers are likely to pay average prices for goods and services due to the large variety of products and many producers who are not part ice setters unlike monopolies. Also, economies of scale are unlikely to develop and benefit firms in a perfect competition market structure(Advanced Economics,2013)
Moreover, consumers are likely to enjoy quality products due to the existence of a competitive market. Also, perfect competition encourages trade and economic growth due to the non-existence of entry barriers. Further, the possibility of firms in this structure to make supernormal profits in the short run makes this market model attractive(Economics Online ,n.d)Due to perfect flow of information ,there's no flow of misleading information between producers and consumers which is ideal for consumers and other market players .Also, there’s no chance of consumer exploitation due to the lack of monopoly power.Further,lack of entry barriers has encouraged free trade and more market output(Economics Online ,n.d)
Following the existence of information and knowledge on a product and service, producer or seller firms need to advertise their products thus saving firm advertising costs. Moreover, seller firms are able to incur limited expenditure due to the fact that there are no additional costs for advertising but opportunity costs only .Additionally, perfect competition firms record allocative and productive efficiency as opposed to monopolies(Economics Online n.d)However, perfect competition also has its shortcoming.Typically,perfect competition encourages influx of firms into the market or industry which could drive out some firms from the business due to highly competitive market structure.
In addition, price fluctuations are likely to destabilize consumer incomes(Advanced Economics,2013)Similarly, monopoly and perfect competition share cost and production frameworks.Further,both firms in the two market structure aspire to maximize profits .Also, both market structures are marred with competitive factors(Boundless ,n. d)However, in a perfect competitive market ,price of goods and services at equilibrium results into economic efficiency whereas in a monopoly ,price is greater than marginal cost resulting into lower outcomes(Bounderless, n.d.)However, under perfect competition the price is lower than the marginal cost hence resulting into more quantity.
Predominantly ,perfect competition firms control the ir output whereas monopolies control the price of their output(Bounderless, n.d)Regarding outcomes, At equilibrium, perfect competition the price of goods and services is similar to the marginal cost whereas in a monopoly, the value of goods and services is greater than the average cost(Kumar ,n .d)Pertaining profits, monopolies make supernormal profits while normal profits are enjoyed by perfect competition firms in the long run(Economics Discussion ,n.d)Primarily, under monopoly the supply curve is unpredictable thus making perfect competition more predictable with its supply curve thus an advantage for perfect competitive markets.
Following the existence of many firms in perfect competition, there’s massive production of goods as compared to monopolies thus the assertion that perfect competition is output desirable as compared to monopolies .Under perfect competition, productive efficiency is achieved where marginal cost is equal to average production cost. Notably, competitive firms are efficient allocatively but lack dynamic efficiency due to small firm capacity (Sanandress,n.d.)
In a perfect competition, there's massive output due to the large number of sellers as compared to monopoly. Despite having less market power ,firms in perfect competition are efficient in their outcomes as contrasted with monopolies(Missouri State ,n .d)Perfect competition firms incur low production costs thus boosting productive efficiency(Sanandres, n. d.)Profoundly, perfectly competitive markets are non-existent in the real world. However, theoretically, perfect competition is the best market structure for consumers and producers as compared to monopolies which is centered on maximizing profits for the monopolies at the likely expense of the consumers hence the need for government regulation through antitrust laws and other policy measures.
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