Monopolistic Competition Market Structure Analysis Assessment Answer

Answer:

Introduction:

A market refers to a place where exchange of goods and services take place in lieu of money or other such equivalent consideration. However, in Economics the term is viewed in a wider perspective. It is not restricted to a particular place but spreads its wings to the entire region wherever sellers and purchasers of a particular product exist. A market structure helps to determine the various aspects of a market. It takes care about the competition prevailing in the existing market for the goods and services, How many buyers and sellers are there and what is their nature, what product, how to enter and exit from the said market and what are the economies of scale. In a competitive market the entity’s ability to influence a market is very low.  Four very common and important market structures of Australia is the point of discussion here. They are monopoly, duopoly, oligopoly and monopolistic competition. A market structure is dynamic in nature and it keeps on changing from time to time depending upon the change in the competition, what is the impact of the change in product and most importantly the tastes and interests of the customers (Chanda, 2015).


Monopoly as the name suggests means a situation where there is no substitute available for a particular product or service in the market. The monopolistic market has the freedom to decide upon the prices of the product without factoring in the market conditions and the demand-supply curve as they are the sole producer of that product (Irvine, 2010). Due to single control over the production of a product, the monopoly enterprise ensures that competitors are not able to enter. However the present scenario has been mainly limited to only government regulated enterprises such as the electricity supply board, the water supply board and similar such public utilities. They are often called the ‘price setters ‘as because of their position to rule the market. Australia has reported a few monopolies in this dynamism as well (Stephanie, 2015).

Australia has some monopolies existing and those which are being traded in the ASX. Due to their market power they tend to derive earnings at a premium. The airport at Sydney is a monopoly asset of Australia because of its strategic placement. It is the only international airport which provides adequate services to the Australians and the tourists and thus a great support to the economy of the country. Its monopoly is guided by a law which gives Sydney Airport Holdings Ltd. a right to refuse a second international airport (Padarath, 2016).

An oligopoly market is one which is dominated by more than one but restricted to a very small group of players in the market. Thus it is known as an imperfect form of competition in the market. Oligopoly market has some distinct characteristics such as the players are few, they sell similar products which differ in minute terms and installs restrictions for entry of other companies and manufacturers In this market scenario, exists some magnificent players who constantly try to mitigate competition by owing a larger piece of share. In such a kind of market the firms try to do equitable pricing of similar products available in the market. The participants of this market structure do not compete with each other basis price but they compete basis the amount of sales they have made (Klijn, 2015).  

Some of the major oligopolies in Australia are Coca Cola, Kellogg’s, Bridgestone and Dunlop. One of the greatest examples of oligopoly which has recently emerged in the Australian market is in the telecommunication sector. Its impact cannot be ignored. Telstra was the only major player in the telecom industry in Australia for ages until two more entrants entered the market in a big way endangering its monopoly. These players were Vodafone Australia and Singapore owned Optus There were news that the Singapore telecommunication would delist itself from ASX but at the same time it confirmed that Optus would be a part of the market and ensure that the position of Telstra is endangered (Tyers, 2014). Even Vodafone has off lately gained success after it succeeded in resolving its network issues. Australia is said to be mostly dominated by oligopoly market.  Australia has this unique feature wherein each industry has mostly two to four dominant players due to which investing these companies yield higher returns to the investors. As per the study conducted by UBS, sectors which are dominated by oligopolies perform much better at an average rate of4.9 percent on an annual basis. Also the intervention of the Australian Competition and Consumer Commission makes it clear that government has ensured that the consumers are not exploited by these monopolies and duopolies. Foe example the ACCC has fixed the price that Telstra can charge from its competitors in order to allow them access Telstra’s network. This has been done specifically to regulate the amount that Telstra could have charged otherwise (Dagge, 2015).

Duopoly is a variant of the oligopoly market structure where the numbers of players as the name suggests are only two. Australia’s grocery sector was one such example of a duopoly market structure until there were entrants from Germany. Ruling over a market share of 79 percent the Australian based company Woolsworths and Wesfarmers-owned Coles have ruled this sector for decades (Global Credit Research, 2015).

Unfortunately, recently it has been noticed that the oligopoly market of Australia is facing death in various sectors. The grocery kings are now facing a tiff from Aldi, Costco and SPAR- German companies. This is expected to have an impact similar to what happened in the United Kingdom. Thus oligopoly though has been the main market structure of Australia for decades; the same is now facing a few challenges which may wipe of the said structure from those sectors soon (Theconversation.com., 2011). 

The most sought after example to describe the varying market structure of Australia is that of Coca-cola and Pepsi. The market share of Coca-cola is thrice that of Pepsi in Australia. During the great depression, twice Pepsi Inc. declared itself bankrupt. Even though Coca-cola company could have bought Pepsi but it chose not to. Had it done so then it would have had enjoyed a monopoly and would have earned huge profits for years. But even though it does not have monopoly in the field of beverage yet its market share is considered to be as much as three times than that of Pepsi (Lin, 2012).

The reason behind is convenience in availability of Coke around the world. Any food retailer keeps one of the two types of cola – Coke or Pepsi and most retailers have Coke as their beverage. Thus in this duopoly market of beverage Coca-cola steals the show. Thus the said beverage dominates the market simply because of its marketing strategy, price and the ease in procuring the cola by general public.

The next very prominent type of market structure prevalent in Australia is named as monopolistic competition market. This is one of the most perfect forms of the market structure wherein there is no restrictions on the entry and exit of firms. Further this industry offers products which are similar but with some minute distinguishing factors. These can be used as a substitute but not a perfect one.  This market is too volatile and reacts very quickly to changes in the prices of the products. The firms belonging to this market are more inclined towards advertisements.

Another very distinct feature of a monopolistic competition market structure is brand and how the same is promoted in the market. Customers are often seen very brand loyal and they prefer to pay an extra penny for their favourite brand (Hubbard et.al. 2013).

Apart from the above, although the entry-exit is easy in a monopolistic competitive market structure yet it faced the exit of Starbucks from Australia after operating for eight long years. Product delineation is the success for any type of an industry in this market structure. However on a detailed analysis of the reason for the downfall it was understood that Australia’s market is more localized in nature i.e. Starbucks offers only standardized products thus failed to relate to the tastes of the localites. Even though there was some differentiation in the products they offered but that was too late. They should have understood that the taste buds of Australians were similar to Europeans and not Americans.

The next very important factor was pricing. Its prices are too high as compared to the other local cafes and shops and the Australians did not find it worth. Further one of the largest coffee brands of the world failed to adopt a strategy so as to retain customers loyalty. They did not understand the fact product differentiation is a continuous process and before its products get copied by the other local coffee shops, it should have introduced something new so as to keep the interest of the customers intact.  Thus from the above example it is very well understood that to enable sustainability of a monopolistic competitive market in Australia the brands and the manufacturers have to relate themselves with the crowd and the targeted customers. To beat the competition and charge premium amount for their products, they will understand how the market curve works as each country offers a different kind of a market structure (The Weekly, 2013).

Also Australia is a continent which is more inclined towards duopolistic and oligopolistic type of a market structure. Monopoly also exists though very few in number. However monopolistic competitive market is very rare. Also to survive in a monopolistic competitive market in Australia is more difficult then surviving in the other market structures.

Thus on a concluding note it is understood that in today’s world of tough competition, Australia is one such continent where monopoly is still in vogue. It is the only country which has not faced a hit due to recession. Australian monopoly companies are more inclined towards pouring in their money to find out innovative ways and means of production and invest a major part into research and developmental activities. The country has only two major airline industry and two retailers operating presently thus clearly showing an inclination towards duopoly market structure also. Oligopolistic market is found in the banking sector where the major player are only four in number.

References:

Chanda, S., 2015, Market Structure : Meaning, Characteristics and Forms Economics, viewed on 08th August 2016, https://www.yourarticlelibrary.com/economics/market/market-structure-meaning-characteristics-and-forms-economics/28736/

Dagge, J., 2015, Study finds Australian Monopolies have better results, viewed on 08th August 2016, https://www.heraldsun.com.au/business/study-finds-australian-monopolies-have-better-results/news-story/83436800178abede28b01f82135a5da5

Global Credit Research, 2015, Moody’s : Australian Grocery market’s duopoly faces shake up, viewed on 08th August 2016, https://www.moodys.com/research/Moodys-Australian-grocery-markets-duopoly-faces-shake-up--PR_332437

Hubbard, G., Garnett, A., & Lewis, P., 2013, Essentials of Economics, Pearson Australia: NSW

Irvine, J., 2010, Get out of monopoly free cards cant be left out to the roll of the dice, viewed on 08th August 2016, https://www.smh.com.au/federal-politics/political-opinion/get-out-of-monopoly-free-cards-cant-be-left-to-the-roll-of-the-dice-20101026-172ax.html

Klijn, W., 2015, Study finds Australian oligopoly premium, viewed on 08th August 2016, https://www.theinstoreport.com.au/articles/study-finds-australian-oligopoly-premium

Lin, H., 2012, Coca-cola vs. Pepsi: The Economics behind Coke’s Dominance, viewed on 08th August 2016, https://economicstudents.com/2012/10/coca-cola-vs-pepsi-the-economics-behind-cokes-dominance/

Padarath, R., 2016, 3 ways to beat the market by investing in monopoly style business, viewed on 08th August 2016, https://www.fool.com.au/2016/03/31/3-ways-to-beat-the-market-by-investing-in-monopoly-style-businesses/

Stephanie, J.D., 2015, Market Structure Assignment, viewed on 08th August 2016, https://prezi.com/2tizn-6vm8mx/market-structure-assignment/

The Weekly, 2013, The Long Run : When Exiting a Monopolistically Competitive Market Can Be A Good Idea, viewed on 08th Aug 2016, https://cassmba3.weebly.com/the-failed-long-run.html

Theconversation.com., 2011, Coles and Woolsworths duopoly hard to swallow, viewed on 08th August 2016, https://theconversation.com/coles-and-woolworths-duopoly-hard-to-swallow-533

Tyers, R., 2014, Service Oligopolies and Australia’s Economy Wide Performance, The University of Western Australia

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