Oligopoly vs. Monopolistic Competition What is the difference between the two ma
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Question
Oligopoly vs. Monopolistic CompetitionWhat is the difference between the two market structures we are covering this seminar? Provide examples of each.
Oligopoly
Let’s take our Name that Monopolist game to the next chapter. Can you name a few industries that operate in oligopoly?
Some think that cartels like monopoly mostly exist today due to intervention, rather than through market alliances. Seeking to find market cartels, do we have examples of cartels that operated in the market economy? Thinking back to the motives of firms. What would be the likely outcome of such an agreement, assuming individuals act in their self interests? Prisoners' Dilemma I don’t watch a lot of TV but I occasionally get involved in a reality show. Recently, I found myself engaged in Bachelor Pad. For those that don’t know, this is a spin-off of the bachelor show. I think I find it interesting because everyone is always weighing the pros and cons of alliances, potential partners, etc., where they need to convince others they are not acting in their own self-interest to win the jackpot, but history has shown they absolutely are! The end of the show involves the winning couple being split and put into separate rooms, much like you would have in a prisoners’ dilemma. The individuals must make one of two choices: keep the money, or share the money. If both share, the jackpot is split in half. If both keep, neither gets it. If one keeps and the other shares, the one that keeps gets the entire amount. You never know how much your economic class would show up in your everyday live! Can you give examples of other similar dilemmas? What was the outcome? Did individuals act rationally or not; in their self-interest or not? Long-term Monopolistic Competition View
You own a gourmet pizza store that was a beginning producer of gluten-free pizza. At the moment your store’s speciality is viewed by the public as a niche, and is able to charge a premium for your pizzas because of that fact.
As you plan for the future of your business and create long-term plans for expansion, what are some of the possibility outcomes for your industry in terms of possible changes in market structure? Can you plan on always having a competitive advantage as a monopolistic competitor?
Oligopoly vs. Monopolistic Competition
What is the difference between the two market structures we are covering this seminar? Provide examples of each.
Oligopoly
Let’s take our Name that Monopolist game to the next chapter. Can you name a few industries that operate in oligopoly?
Some think that cartels like monopoly mostly exist today due to intervention, rather than through market alliances. Seeking to find market cartels, do we have examples of cartels that operated in the market economy? Thinking back to the motives of firms. What would be the likely outcome of such an agreement, assuming individuals act in their self interests? Prisoners' Dilemma I don’t watch a lot of TV but I occasionally get involved in a reality show. Recently, I found myself engaged in Bachelor Pad. For those that don’t know, this is a spin-off of the bachelor show. I think I find it interesting because everyone is always weighing the pros and cons of alliances, potential partners, etc., where they need to convince others they are not acting in their own self-interest to win the jackpot, but history has shown they absolutely are! The end of the show involves the winning couple being split and put into separate rooms, much like you would have in a prisoners’ dilemma. The individuals must make one of two choices: keep the money, or share the money. If both share, the jackpot is split in half. If both keep, neither gets it. If one keeps and the other shares, the one that keeps gets the entire amount. You never know how much your economic class would show up in your everyday live! Can you give examples of other similar dilemmas? What was the outcome? Did individuals act rationally or not; in their self-interest or not? Long-term Monopolistic Competition View
You own a gourmet pizza store that was a beginning producer of gluten-free pizza. At the moment your store’s speciality is viewed by the public as a niche, and is able to charge a premium for your pizzas because of that fact.
As you plan for the future of your business and create long-term plans for expansion, what are some of the possibility outcomes for your industry in terms of possible changes in market structure? Can you plan on always having a competitive advantage as a monopolistic competitor?
Oligopoly vs. Monopolistic Competition
What is the difference between the two market structures we are covering this seminar? Provide examples of each.
Oligopoly
Let’s take our Name that Monopolist game to the next chapter. Can you name a few industries that operate in oligopoly?
Some think that cartels like monopoly mostly exist today due to intervention, rather than through market alliances. Seeking to find market cartels, do we have examples of cartels that operated in the market economy? Thinking back to the motives of firms. What would be the likely outcome of such an agreement, assuming individuals act in their self interests? Prisoners' Dilemma I don’t watch a lot of TV but I occasionally get involved in a reality show. Recently, I found myself engaged in Bachelor Pad. For those that don’t know, this is a spin-off of the bachelor show. I think I find it interesting because everyone is always weighing the pros and cons of alliances, potential partners, etc., where they need to convince others they are not acting in their own self-interest to win the jackpot, but history has shown they absolutely are! The end of the show involves the winning couple being split and put into separate rooms, much like you would have in a prisoners’ dilemma. The individuals must make one of two choices: keep the money, or share the money. If both share, the jackpot is split in half. If both keep, neither gets it. If one keeps and the other shares, the one that keeps gets the entire amount. You never know how much your economic class would show up in your everyday live! Can you give examples of other similar dilemmas? What was the outcome? Did individuals act rationally or not; in their self-interest or not? Long-term Monopolistic Competition View
You own a gourmet pizza store that was a beginning producer of gluten-free pizza. At the moment your store’s speciality is viewed by the public as a niche, and is able to charge a premium for your pizzas because of that fact.
As you plan for the future of your business and create long-term plans for expansion, what are some of the possibility outcomes for your industry in terms of possible changes in market structure? Can you plan on always having a competitive advantage as a monopolistic competitor?
Explanation / Answer
Solution:
Monopoly: Monopoly made from two words. Mono means single and poly means player. So, as its name suggest monopoly is a market structure which is consist of a single firm that produces goods with no close substitute. The entry for new players in this market is tough and almost impossible.
Oligopoly: Oligopoly made from two words. Oligo means few and poly means player. So, as its name suggest oligopoly is a market structure which is consist of few large firms that produces similar but slightly different goods. The entry for new players in this market is also tough but not impossible.
Difference between Monopoly and Oligopoly:
No of player: In monopoly there are only one player. While in oligopoly there are few players.
Competition: There are no competition in the monopoly. Whereas in oligopoly there are few competition due to presence of some firms.
Price: In monopoly there is a single firm. So, it can charge high price for the goods it produced because of no competition. On the other hand in oligopoly the price is moderate as there are some competition in the market due to presence of other firms.
Goods: In monopoly the goods produced is unique and there is no substitute available for the consumer. On the other hand in oligopoly the goods produced are rare but not unique as there are availability of substitute due to production of similar goods by other firms.
Examples of players in oligopoly:
Mobile service providers: There are few mobile service provider in a country. They provide similar service with little difference in terms of quality, customer service, etc. examples are Verizon, sprint, etc.
Auto Industry: This industry is dominated by few firms thus makes it oligopoly market. Examples are ford, GMC, Chrysler, etc.
Operating system providers: OS providing industry is strictly dominated by Apple, Microsoft, etc.
Cartel: Cartel is an association or organisation of few firms producing similar or homogenous goods. The main goal of this organisation is to maximise profit or minimize loss of member firms. As there are presence of few firms, the cartel basically happens in oligopoly. Cartel can be formed by the legal industry like oil and gas or by the illegal industries like drug dealer. On the one hand it is profitable for the producer but it has negative impact on the consumer as it has formed to set prices higher for profitability by restricting supplies.
Examples of Cartel:
Oil and gas agency- OPEC is the largest cartel and is consist of 14 oil and petroleum producing countries. The aim of this cartel is to set similar policy to stabilize the oil prices.
Drug cartel- A famous cartel was found in 1983 named as Medellin cartel. The aim of this cartel was to traffic drugs like cocaine in the US.
Prisoner’s dilemma : It is an example of a game in game theory. It provides a framework for decision making. It also shows the balancing between co-operation and competition. In this game the incentive for competition is so strong that people tends to get compete or betray even if co-operation yield best result for them.
Example of games like prisoner’s dilemma:
Coca cola vs. Pepsi
Suppose coca cola and Pepsi are the two firms producing similar goods. Now, if they cooperate they get 100 in profit. If one co- operate and other doesn’t. Then the one co-operate gets 0 and other get 200. If both doesn’t co-operate, each get 50. There payoff will be as below:
Pepsi
Co-operate
Don't
Coca cola
Co-operate
100,100
0,200
Don't
200,0
50,50
Although for co-operate the incentive is high but thy might not co-operate as loss in the case of defect by others is greater.
Pepsi
Co-operate
Don't
Coca cola
Co-operate
100,100
0,200
Don't
200,0
50,50
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