Market Structure and Innovation Monopolistic Competition †Free Sample

Question: Discuss about the Market Structure and Innovation Monopolistic Competition. Answer: Introduction: In terms of market economies, depending on the participating companies, a number of market systems can be identified. In the meanwhile, the business firms need to identify the operating market system in order to make manufacturing decisions and pricing of products or services offered towards the target demographics (Kamien Schwartz, 2012). Characterised by the number of purchasers and sellers available in a market system, a monopolistic competitive market can be differentiated from monopoly, oligopoly, and perfect competition (Carl, 2012). According to the economists, eateries such as coffee shops, cafe, restaurants, and patisseries, etc can be categorised into a monopolistic competition. The paper has been developed to evaluate the characteristics of different market structure and prove that eateries such as coffee shops, cafe, restaurants, and patisseries, etc are categorised into a monopolistic competition. Invariably, an analysis has been done to understand whether three or four such firms could compete in an oligopolistic market system. Precisely, the monopolistic competitive market system management has involved a number of elements of perfect competition and monopoly market system (Chu, 2012). Evidently, in a monopolistic competition, firms operating in the industry have offered almost similar products or services but the sold products or services are not perfect substitutes (Brems, 2013). In the meanwhile, the participants in the market possess equal as well as a low degree of market power whereas each of the firms can be identified as price makers. A figure has been presented herein below for better understanding: In a monopolistic competitive market, the price is decided by the firms using the formula MR = MC. However, the profit maximisation is low due to highly elastic demand. Hence, the amount of profitability can be found to be low at eateries such as coffee shops, cafe, restaurants, and patisseries, etc that makes them perfect match for monopolistic competition market. In reality, such market system is the middle position between perfect competition and monopolistic system (Kuenne Chamberlin, 2014). Unlike monopolistic market, a number of operating firms have taken part in the market system many. On the other hand, the obstructions to entry as well exit in the market system is significantly low (Forstater, 2017). Considerably, the decisions taken by any of the business firms participating in the monopolistic competitive market do not affect the other market competitors in a direct way. However, it can be seen through the theories of market economies that the eatery businesses cannot be categorised into monopoly or perfectly competition market. The primary reason for these businesses to not come under the monopoly and perfectly competition market is the decision making abilities of the firm regarding the price charged from the customers and slight substitutional effects of the products and services that makes the demand curve highly elastic (McCorkle, 2011). According to the characteristics of the perfectly competitive market management, the price is decided to be equal to the marginal costs at the equilibrium level due to a perfectly elastic demand curve. In a perfectly competitive market, P = AR = MR = MC = Minimum ATC. Hence, perfectly competitive firms are price takers and possess least decision making powers regarding the pricing strategy. A diagram has been presented herein below for better understanding: The eateries such as the restaurants, cafe, patisseries, and coffee shops serves differentiated products and services that are substitutes, but not perfect substitutes of each other. Hence, they charge higher prices as compared to the firms in a perfectly competitive environment (Chu, 2012). On the other hand, the price charged by the monopoly businesses is much higher than the total average cost in the market. Considering the fact, the eateries businesses cannot charge higher price as the monopolistic firms does (Forstater, 2017). A figure has been presented herein below for better understanding: It can be seen through the above figure that monopoly market has inelastic demand that maximises the profit by a higher amount. Therefore, it can be seen that the eateries businesses such as the restaurants, cafe, patisseries, and coffee shops cannot be considered as monopolistic or perfectly competitive firms (Forstater, 2017). These firms presents the characteristics of both the market, i.e. monopoly and perfectly competition that makes them operate in a monopolistic competitive market. Now, by considering the fact that whether three to four eateries firms such as the restaurants, cafe, patisseries, and coffee shops can operate in an oligopoly market, it is important to note that this type of markets have high barriers to entry. As the firms in oligopoly market are price makers due to no substitution available, the demand curve is inelastic in nature that maximises the profitability as compared to monopolistic competition. Furthermore, the high level of barriers to enter an oligopoly market occurs due to the requirement of high investment and legal proceedings (Pscoa, 2016). For example, the wireless carriers in a nation are found to operate in an oligopoly market. Hence, there is a need of massive capital expenditures to develop the infrastructure. Furthermore, the operators in an oligopolistic market tend to increase brand image by conducting different marketing activities. But, in the case of eateries, the investment and legal proceedings required to start a new business is quite low. There is a high level of competition that is met by product differentiation strategy (Pscoa, 2016). On the other hand, the eateries such as the restaurants, cafe, patisseries, and coffee shops are small scale firms that require low level of capital and financial funding. It is quite difficult for three to four eateries firms to make an oligopoly market. Hence, it is quite clear that three to four such firms cannot comp ete oligopolistically. A comparison of all four market structure has been presented in appendix 1 for further consideration. By considering the above discussion, it can be seen that small scale eateries such as cafs, coffee shops, snack-bars, restaurants and patisseries presents certain characteristics of both monopoly and perfectly competitive firms. On the other hand, these firms do not need high level of investment and legal proceedings that are required to compete oligopolistically. Hence, it can be clearly stated that eateries such as cafs, coffee shops, snack-bars, restaurants and patisseries primarily operates in monopolistically competitive markets. References Brems, H. (2013).Product equilibrium under monopolistic competition. Cambridge: Harvard Univ Press. Carl, S. (2012).Market Structure. New Delhi: World Technologies. Chu, Y. (2012). Optimal capital structure, bargaining, and the supplier market structure.Journal Of Financial Economics,106(2), 411-426. Forstater, M. (2017).Economics. London: A. C. Black. Kamien, M., Schwartz, N. (2012).Market structure and innovation. Cambridge: Cambridge University Press. Kuenne, R., Chamberlin, E. (2014).Monopolistic competition theory: studies in impact. Wiley. McCorkle, S. (2011).Focus, economic systems. [New York, NY]: National Council on Economic Education. Pscoa, M. (2016). Monopolistic competition and non-neighboring-goods.Economic Theory,9(1), 129-142.