Industrial Competition and Monopoly
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Monopoly and competition are regarded as basic factors in structuring the economic markets. When it comes to economics, competition and monopoly signify certain complex relations among firms in an industry. The subject is described as the concern with markets which cannot be analyzed easily by the use of standard textbook model of the competition. Industrial competition adds to perfectly competitive way of real-world frictions e.g. transaction costs, barriers to the entry and limited information of the new firms which is associated with the imperfect competition (Baldwin, 1992). This analyzes the determinants of market and firm organization and the behaviour as between monopoly and competition, including the government actions.
The law of a particular commodity competition contrasts with the monopsony that relates to a market single entity control in purchasing the service or good, and the oligopoly consisting of few entities which dominate an industry. Monopolies are always characterized when there is a lack of economic competition in production of services or goods and lack of viable substitute goods (Baldwin, 1992). Monopolising is therefore described as the process whereby the company gains much of greater market share unlike is expected with the perfect competition.
A monopoly is derived from monopsony, whereby the service or product has one buyer; also, monopolies have monopsony controlling a sector of market. Similarly, a monopoly is always distinguished from cartels (oligopoly form), whereby, several providers act hand in hand in coordinating services, goods’ sales or prices. Monopolies, oligopolies and monopsonies are in situations that very few entities have got the market power and thus interacting with the customers (monopoly), suppliers (monopsony) and different companies (oligopoly) in game theoretic manner, this means that, expectations about the kind of behaviour they have has effects on other players’ strategy choices and vice versa. This is contrasted with the model of perfect competition whereby companies are price takers and don’t have market power.
If not coerced legally in doing it otherwise, monopolies are typically maximize the profits through producing fewer goods and selling the profits at higher prices than it is expected in the case of perfect competition (Friedman, 1953). Sometimes, governments also decide legally that given companies are monopoly which does not serve the best of interests of market and consumers. Government are also forced to make such companies in dividing into smaller corporations that are independent or alter the behaviour to protect consumers.
Monopolies are always established by the government, form logically, or mergers form. A monopoly is always considered coercive when monopoly actively prohibits the competitors by the use of practices e.g. underselling that is derived from the market or even political influence. In several jurisdictions, the laws in competition also restrict monopolies. When holding a dominant position or market monopoly itself is not illegal, however, some categories of characters can, when business becomes dominant, when it is considered abusive and thus incur legal sanctions.
The subjects have different approaches. One of them is descriptive in provision of an overview in industrialization, such as competition measures and size-concentration of industry firms. The second one is microeconomic models; it explains the internal firm organization with market strategy. The other methods that become standard in unifying analysis are strategic firm interaction, game theory which is non-cooperative. Lastly, the other aspect is always oriented to the public policy as to the economic antitrust and regulation law.
Monopolistic competition is defined as a type of imperfect competition whereby competing producers always sell products which are differentiated from each other as good but it are not perfect in substitutes. In this competition, a firm takes prices that are charged by the rivals as given ignoring the impact of own prices and firm prices.
In monopolistically competitive market, firms behave like monopolies in a short run, this included the use of market power in generation of profit. However, some firms enter market and benefits of the differentiation decreasing with competition; here the market becomes perfectly competitive and firms do not gain economic profit.
Types of structures in the market are also influenced by means whereby, a company produces and then distributes products. Different industries also have different structures in the market, that is, different characteristics which determine relations of the sellers to each other, sellers to the buyers and so. The aspects of the structures in the market also underlie the competitive landscape.
Concentration of sellers is defined as the number of sellers in an industry together with comparative shares in the industry sales. When the number of sellers is large, and each and every seller’s share in the market is smaller, then in practice, he cannot, by the change in selling price or the output, perceptibly influence the market income or share of a competing seller, this is known as atomistic competition according to competition (Chamberlin, 1933). A best example is seen in oligopoly situation whereby a number of sellers are few that market share of each is very large and there is the modest change of price or one seller output to have the perceptible effect on market shares and incomes of the rival’s sellers that causes them to react to change. In broader logic, oligopoly exists in industry which at least some sellers are having large shares in the market, even though the number of additional small sellers. When single seller supplies entire industries output, it determines his selling price and output without any concern for reactions of the rival sellers, there is existence of the single-firm monopoly.
Industries always vary with the respect of ease with which new sellers can enter them. The entry barriers consists advantages that are already established by sellers in industry having them over the potential entrant. Such barriers are always measurable by extending whereby, established sellers persistently elevate their prices of selling above the minimal average costs and new sellers are not attracted (Chamberlin, 1933). Barriers also exist when the costs for sellers establishment are lower than it is for the new entrants, this is because, the well known established sellers command higher prices for the consumers or buyers who prefer their products to the potential entrants’ ones. Industries economics is that, also the new entrants should be able to command a substantial market share before operating profitably. However, there is a variation of effective height of the barriers. Someone has to distinguish the three rough and difficult degrees when entering the industry: blockaded entry that allows established sellers to be setting monopolistic prices without attraction of entry; impeded entering that allows the establishment of sellers in raising their selling prices past the minimal costs, nevertheless, it is not as high as the monopolistic prices, without the attraction of new sellers who will end up raising prices above the minimal average costs and there will be no attraction of new entrants.
In a complex situation of the monopolistic competition (the atomistic structure with the differentiation), the performance of market and its conduct is said to be following the rough tendencies that are attributed to the perfect competition. To begin with the differences in principals, because of product differentiation, individual sellers are capable of raising or even lowering their individual prices of their sales slightly; however, for they remain strongly as the subject to impersonal forces of the operation in the market through the prices general level. The other one is rivalry among the sellers which likely involve the sales-promotion and the costs as well as the expenses in altering the products so that buyers are appealed. This game is played by both, but no one wins; however, the long-run equilibrium price reflects the costs added. In return to this, buyers will have more variety (Franklin, 1987). Also, since the sellers are not equally successful in their promotions and the policies of their products, some will receive profits in excess of basic interests in the return of their investment; these profits come from their success in winning consumers. The competition might include the afflicted industries with destructive competition. This is as a result of failure of removing the excess capacity and also entry of many new firms despite of the danger in losses.
While the single-firm monopolies tend to be rare, except the subject to the public regulation, it is very useful to be examining the monopolist conduct in the market and the performance that establishes the standard pole opposite which perfects in competition. As sole supplier of the distinctive product, selling prices can be set by any monopolistic company, as long as it complies with the sales corresponding to the price. The demand in market is generally and inversely related to the price, on the other hand, the monopolist presumably will set price which produces the greatest profits, given product relationship of the output to production cost. When the firm is restricting the output, it can be able to raise its selling price significantly and this option is not open to the sellers in the atomistic industries (Franklin, 1987).
The monopolist charges prices well in the excess production costs and profit reap well above the normal interest in return on investment. The output will substantially smaller and higher prices, than if it was to meet the established market prices as in the perfect competition. The monopolist might or might not produce at the minimal average cost, and this depends on the cost-output relationship; if it doesn’t, there are no pressures from the market to forcing it to do so. If monopolist is subjected to not threating the competitor entry, the selling price which maximizes profits for industries it monopolizes will be set by him. After facing only the impeded entry, election may be done to sufficiently charge the price lower in discouraging entry but above competitive price, if it maximizes the long run profits. Rivalry among the sellers can be termed as the simplest form of the oligopolistic industry, we have very few sellers and each seller supplies a sufficiently large market share so that any of the feasible certainly affects market shares of the rival sellers, this will induce them to respond or react.
The promotion and product differential in industries has a tendency for the minor but very significant income fractions to be devoted to persuasive advertising and other promotions and also less or more idle variations of the design of the product results that resources are in sense wasted and also cost increased (Lipsey, 1989). By criteria of the competition in working, a merely rational society presumably favours the industries with the moderation in lowering seller concentration and moderating to lower barriers to the entry and without the extreme differentiation in product and this from is enhancing a standpoint in overall welfare of the material. Price and service warfare in this market has been extremely rare in the industrial countries.
The workable competition varies along with market characteristics according to industry performance. Workable competition was coined generally in denote competition that is considered leading to reasonable or socially acceptable ideal approximation and performance in circumstances of a particular industry. The limits of the approximation are debatable and the idea of workable competition remains elusive for it is basically subjective.
The performance of the market that is varying of oligopolies is the result of the fact from the individual sellers intrinsically having two conflicting aims. The common desire was to establish amongst them a price level monopolistic, which maximizes the combined profits and thus giving them the largest profit pie to be divided. Each seller also has fundamental antagonism towards the rival sellers and wanted to maximize his/her own profits at the expense of others. The level of concentration on the oligopoly is that when we have few sellers with larger shares in individual market, the reactions to the rivals are stronger as well as deterrents to the independent actions.
There are various sorts of the market performances to be expected in the oligopolistic industries. When there is blockading of other sellers’ entry, collusive interdependent character might lead to the full price monopoly. If the entry is impeded, the prices results might be far enough below the full monopoly level discourage the entry. The announced prices are well above the cost and may be undercut through the clandestine price reductions to the specified individual buyers; this brings the number of the average sales and prices down. If oligopolistic industries are made up of core few large interdependent sellers and “competitive fringe” of the several and numerous quite small sellers, the small sellers competition may induce the larger ones who in turn will end up extending to which prices are raised (Lipsey, 1989). The price character that approaches full monopoly in pricing seems to have been found mainly in the oligopolies and having very high seller concentration and the blockaded entry. In that the behaviors are less pronounced, profits and prices also tend to be lower.
The case study is written and translated in the hope of offering to English men who are interested in the economic problems of their country, some of which account to industrial organization. This organization is characterized by the monopolist tendencies which run to counter prevailing regime of the free competition. The existing of the English industry by the history of monopoly and the competition, occur at the same time so that to give an analysis of the English cartels. It is the duty of science to show what facts have given rise to these two systems of industrial economy in a respective manner.
When industrial revolution began in the second half during the eighteenth century, the organization of English industry was better prepared and more advanced than that of the European states. Before the actual repeal of the statute of Apprentice and other regulation completed the freedom of English industry, hence the way had become open within the bounds of industrial capitalism for an individual activity and mutual competition. When the industrial capitalism commenced in England, the system which granted privileges to individuals prevented the growth of competition among the many that were both fitted and willing to be leaders of the industry.
The system which gave advantage to few individuals at the cost of all the rest fell after the extended struggles at the end of the seventeenth century, was an important factor in the modern freedom of industry. Almost a century later, a new technical and economic movement began, but the relevance in this connection during the early won industry freedom was never observed by the English economists. However, they regarded the free play of competition as a natural sentiment in the capitalist industry. The more this triumph of free industry was taken earlier as a matter of course, the more content economist were to apply the expression “freedom of industry” hence the delivery of industry from the fetters that regulate gild.
Nowadays all countries, including England, have formed a new monopoly that arises in the industry; hence attention is diverted to the monopolies which saw the birth of the early capitalism. The fall was necessary preliminary of epoch during the free competition, which in turns appears to be inevitable coming to an end through the action of trust and cartels. During the reign of the Queen Elizabeth, a great number of new industries were introduced into England partly by foreigners and Englishmen. However, the majorities were from the beginning of capitalistic character, and removed far from the domestic handicraft. In most cases, the adventures consist of foreigners who do well and are acquainted with the new industries; native merchants and the amount invested were often not inconsiderably even in comparison with the modern times.
At the end of the sixteenth century, Cornish tin mining was in an unfavorable position; hence lead to many works coming to a standstill owing to the increasing cost of working in deeper levels. Introduction of pumping machinery had become an essential preliminary to any increase of production. To those poor laborers who are not able to maintain themselves and their families, are compelled by the necessity for a small amount of money so that enter bonds with “regraters” of tins, in a value that much more than the money they had received from them. The mine workers are regarded as formally independent, in spite of their tin at their own cost and risk. In the presence of highly placed persons and of the Lord Mayor of London, an exhibition for washing was given in which the society soap was found to be better than that of the old soap makers in London. The influence of the monopolistic was stronger since they had obtained the prohibition of the importation of the potash, hence cutting off their competitors from their supply of raw material in accordance with their process so that to use only native material. A mad policy of increasing prices results from this ever growing monopoly market and kindled the resentments of all the consumers.
Although the soap monopoly was one of the most unpopular, it succeeded as Mr. Price has shown, in maintaining itself even in the extent of anti-monopolist days of the commonwealth. The monopolistic control was, besides distract which their operation had commenced. For about a century, monopolies have exercised an important influence during this development. It is possible for the members of the corporation themselves to raise capital by the means of common contributions, with the assistance of the public and by special calls on the richer gilds men. Such measures appear never to have had a lasting success, owing to the financial weakness. An agreement made by the Lydsey, attempting to amalgamate in the one single monopoly to a higher separate industries, and monopolization of the finished product to obtain a more secure and profitable market for the raw material (Dixit, 1979). It brings to mind exactly the modern trust organization. Capital intended to be expand on the national lines, its monopolies differ from the monopolistic organization of the crafts gilds in not being limited to those areas which are special.
The expansion of the monopoly over the whole country has arose where there is a new industry which founder had obtained the law, the privilege of sole manufacture throughout the whole country has arose where there was new industry whose founder had obtained by the law. The nationalism of monopoly might result in the affiliation of several monopolies that are local especially that of craft gilds. The essential foundation of all these early national monopolies was granted the privileges by the law to particular persons and the legal suppression of the unwelcome competition of other producers. Economic advantage enabled the capitalist masters to gain for themselves a monopoly over the head of those brethren.
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