I­n economics there are two main market structure

I­n economics
there are two main market structure that are discussed and those are monopolistic
competition and monopoly. Also less discussed, and only in theory, exists the
perfect competition. The main characteristics for a perfect competition are
firstly, the large number of companies that produce the product, cannot change
the price of the product because of demand and supply law. The product of all
the companies is homogeneity, and finally the free entry and exit of firms in
the industry. In a perfectly competitive market, the price for every firm is
given and it is identify from the demand and supply power. An example of a
perfect competition is the stock market.

The purchase of
a product can be described as a monopoly, when the product is produced and
offered from only one firm in the industry. If there are no substitutes,
products that satisfy the same need, then there is monopoly.

On the other
hand in a monopolistic competition there are many companies that produce and
offer a product, so that every company can take decisions without taking under
consideration the reaction of others, thus there is not the element of
independence. Additional, the differentiation of the product in that category
could be important, not important or also fantastic. That considers the quality
of the product, which means for example the shape, the package and the color of
it.

I will present
you in detail two examples of companies belonging to the monopoly and the
monopolistic competition.

A monopolized
market is characterized by barriers to entry. Only one firm can produce and
offer a product and also there are no other substitutes, products that offer
the same need, are the two main characteristics for monopoly. For example,
electricity firm can consider as a monopoly. (Mceachern, W.A., 2003).

The monopoly
business of Electricity Authority of Cyprus (EAC) dominates in market that it
can produce, because there is no competition; thus the company defines the
price of her product. However, the business must be careful with the price so
that it could not be higher because it increases the demand. For that reason
the company has two options. The first is to define the price and see what is
the quantity that the buyers will accept in that price and the second is to
define the quantity that the company can produce and then see what the price
that the buyers will take is. In monopoly, companies have opportunity to earn
high long- run profits because they are alone in the market. Also they are
willing to maximize their profits without developing new products but relax and
earn excess profits.

The raw material
that is necessary for the produce of electricity service owns in one company.
Also the company should have the knowledge and the technology that is required
for the produce. The state undertake with law the exclusive production of a
product, electricity’s purpose is the customer service and not to maximize the
profit.

The electricity
production system of Cyprus consists from three power stations of the
Electricity Authority of Cyprus. The main object of the Company is to continue
its leading role in the electricity sector as a time-consuming supplier of the
place, thus ensuring the new liberalized environment a reliable, high- quality power
supply. It is worth to comment that on November 2000, the House of
Representatives proceeded and approved a modification of the existing
Electricity Legislation so that EAC can engage in other areas of activity. EAC
now has the right to operates in areas related to exploitation and develop of
its assets and services according to the approval of the Minister of Commerce
and Tourism.

As Bresnahan
T.F. and Reiss P.C. said ‘many technological and strategic forces shape market
structure, including: economies of scale, cost differences among firms,
entrants’ expectation and entry barriers.’

The situations
where the long- run average costs could be lower if an industry were under
monopoly is called natural monopoly and it is created when economies of scale
exists.

The company will
increase profits by increasing its output, when the marginal cost is less than
the marginal revenue. If the marginal cost is greater than marginal revenue,
the firm will increase profits by reducing its output. Eventually, the
enterprise adjusts its production until it reaches Qmax, where the marginal
revenue is equal to the marginal cost. Both competing businesses and monopolies
follow the same profit maximization rule. The total revenue of a monopolistic
market maximized when MC = MR.

Monopolies can have also some advantages. One of those
are the economies of scale as        monopoly is the only supplier of product or
service in the market. Another advantage is the ‘possibility of lower cost
curves due to more research and development and more investment’ as Sloman J.
and Wride A. said. Furthermore monopolies can afford to invest in latest
technology in order to avoid competition and be efficient. Because monopolies make
lots of profits this can be a development for the long- run term.

This form of the
market has monopoly and an element of competition, which is the reason that is
called monopolistic competition. The purpose of the company here is to maximize
their profits, while the company is free to entry or exit from the industry at
any time in the long- run. We can present that with the equation of marginal
cost when it is increasing, with the marginal revenue, which is descending,
since the price is not stable for the market.

Under
monopolistic competition a company has the opportunity for uniqueness and try
to compete other companies so that she can differentiate herself. For example
Cyprus Institute of Marketing has some competitors but it has the elements that
makes it different from the rest. The first picture when somebody visits the
Institute is the very careful building where it is housed. As a Business School
is offering many programs and attract different type of students. As well the
lecturers of the Institute impart different knowledge to their student, as they
are educated and very qualified. Furthermore it provides library, internet
connection and lecture theatres that are very well organized for the proper
conduct of the courses. CIM invests in their students promoting well the
service. As we also studying in Marketing Management we have to first identify
and then satisfy all the needs. In Marketing Mix we implement the four Ps which
are: the Product, the Price, the Promotion and the Place. As far as it concerns
the product, we have to specify and identify what is the need that we want to
cover. The results of the marketing audit lead to the definition of marketing
objectives (David Jobber, Fiona Ellis- Chadwick).

The arguments
comparing monopolistic competition with monopoly are very similar to perfect
competition and monopoly where company in every market structure has the same purpose
and this is to maximize their profits while she reduce production costs and increase
its sale. As Sloman J. and Wride A. said ‘on the one hand, freedom of entry of
new firms and hence the lack of long-run supernormal profits under monopolistic
competition are likely to help keep prices down for the customer and encourage
cost saving. On the other hand, monopolies are likely to achieve greater
economies of scale and have more funds for investment and research and
development’.

Although government
can use plenty of policy instruments. One way is to replace the market and
provide goods and services itself. And another way is to try to convince
producers, consumers or workers to act differently. Government can use many
policy instruments in between those ways and one of this is to change the way
markets operate. These include taxes, subsidies, laws and regulatory bodies (Sloman
J., Wride A.2009).

As Anant et al (1995)
said  ‘von Furstenberg et al. (1986) find
recently that the sequence ‘spend now-tax later’ has much more empirical
validity than the conventionally accepted pair of ‘spend and tax jointly’ ‘.

Regarding the
analysis of the main market structures of monopolistic completion and monopoly
we analyze how we can recognize those two structures by mentioning their
characteristics. However the characteristics that differ on each other there
are some similarities of the markets. In both situations the equilibrium point
is below the price line (AR) and also there is excess capacity. As well in both
markets, the producer is a price- maker, he can raise or lower the price.