• Choose and Respond to 3 posts listed below. Make sure to advance the conversation (add something new); provide a real-world application and experiential examples;
• Conceptually discuss your key [most significant] learning insight or take-away from the selected forum topic comments.
• Responses should be a minimum of 150-250 words, supported by at least one reference outside of the textbook (use academic journals), either supporting or refuting the position of the author of the forum topic response or peer response.
Topic #1
Week #4 Prompt: Why are competitive markets considered more efficient than monopolistic markets? Give economic reasons. Give a real-life example of a market that tends to be competitive and one that tends to be monopolistic. Describe characteristics that support your classification. Is there evidence of efficiency or inefficiency in either of the markets you describe?
Competitive markets tend to be considered more efficient when compared to monopolistic markets due to several factors, including freedom of entry and exit, low prices to consumers, and the availability of numerous substitutes. With minimal barriers to entry, firms are able to join the market and effectively begin to fight for market share immediately; this increase in competition helps spur the market forward in growth, in the short-run. With a vast array of producers in the market, prices to consumers are often lower in a competitive market due to the firms wishing to remain competitive (EconomicsHelp.org , 2015). Additionally, competitive markets tend to be considered more efficient than monopolistic markets because there are a multitude of buyers and sellers within the market, and no one party (buyer or seller) is able to exercise control over the market demand or price (AmosWEB, LLC , 2015). All of these characteristics have the ability, and tendency, to impact consumer demand; the more competitors, substitutes, and low prices that can be found within the market, the greater the overall demand within the market. When compared to a monopolistic market, which is comprised of one firm representing the entire industry, with a product that is unique and without substitute, and pricing that is not reliant on competition, the perception of a competitive market being more efficient seems to be a valid consideration (Keat, Young, & Erfle, 2013).
An example of a real-life competitive market is that of the health-fitness market which has started to impact consumers on a regular basis over the past several years. When comparing the various fitness centers and gyms, consumers are able to choose from a wide array of offerings that range from individual fitness to class exercises, and from basic equipment offerings to more advanced training methods. Within this market, the barriers to entry are minimal and often times companies are able to establish themselves rather quickly, without having to deal with in-depth legal concerns. The market is also filled with competing firms that offer viable substitutes in almost every fashion imaginable; some fitness centers offer low prices for basic provisions, but these low prices lead to high traffic facilities where consumers may not feel comfortable, and some fitness centers offer elite-style training at a premium price for consumers who wish to have an empty gym that caters to their needs specifically (Kennedy, 2015). What we see within this market is multiple buyers that are offering substitutable products, and buyers who are willing to buy a substitute based on its price, its overall benefits, or a combination of the two.
A monopolistic market can be seen in the example of the cable service that is offered by my current apartment complex. Despite living in a geographical region that has several high-speed internet options available, the apartment complex offers cable television through Charter Spectrum at "no additional cost" (it is built into the monthly rent) to the tenants; however, if a tenant wished to have high-speed internet, they must purchase this luxury through Charter Spectrum because of the contract that they have with the apartment complex. While this is not a monopoly on a global scale, or even a state-wide scale, Charter has effectively monopolized the market within this specific location because they have become the sole provider of high-speed internet to the apartment complex, they can adjust their rates as desired because there is no competition, and because there is no competition there are very few viable substitutes available (Reed, 2015). Specific to this type of market, the business side of it makes sense: the apartment complex was most likely able to negotiate a lowered cable television rate for the complex as whole by promising to only allow their tenants to purchase internet through Charter, providing the company with increased revenue. However, form a consumer point of view this monopolistic market is not efficient because I, personally, am constantly seeking a way to switch internet providers due to poor customer service as well as price increases that truly do not compete with other internet companies.
When comparing the two markets described above, efficiencies can be seen within the fitness market because there are multiple product and service offerings available that will meet a wide array of consumer demands. Additionally, some consumers have been known to associate lower prices with sub-par service whilst others scoff at highly prices gym fees claiming that they are no different than the gym down the street which offer's prices at half the cost; the market is able to combat these thoughts by providing differentiated products, that are similar enough in nature to appear as viable substitutes, in order to gain market share and increase overall demand of the market (Levy, 2015). This promotion of competition spurs each organization to continually offer products and services that appeal to consumers, in an attempt to grow their own business, and this reaction helps spur the market toward greater efficiency. The monopolistic market, though having seemingly created demand for their product by being the only provider available to tenants of the apartment complex, lacks overall efficiency for two reasons. First, the market lacks allocative efficiency; with a barrier of entry established to prevent competing firms from gaining the customers, prices for the available product are going to increase to a point higher than marginal and average costs (Pettinger, 2015). Secondly, when operating in a monopolistic market, the company does not have to worry about losing customers due to poor service or poor quality of the products provided; this weakening of the market forces creates an overall inefficient market. While some monopolies may find a way to be efficient within their market, the ideal of considering competitive markets to be more efficient, overall, tends to be supported by economic principles.
Topic #2
A Competitive market is one in which a large number of producers compete with one another to satisfy the wants and needs of consumers. Within a competitive market no single producer or consumer nor group of producers or consumers, can dictate how the market will operate. They also cannot individually determine the price of the goods and services. Competitive markets have the diminishability, rivalry, excludability and rejectability of private goods ( Keat, Young & Efle, 2013).
A monopolistic market is the type of market that features one or more traits of a monopoly and can possess excessive barriers to entry. Monopolistic markets are comprised of one supply firm. Consumers have no choice but to purchase solely from one firm. Without proper legislation or controls this type of firm has the power to raise prices without affecting the demand for its products and services (Jain,n.d.).
A competitive market example would be a gas station. Gas stations offer pricing competitive with other gas stations for consumers business. They can price their product higher or lower than the competition at any given time. In a competitive market a product or service is based on the supply and demand. A monopolistic market example would be a specialty restaurant like Bucharest Grill. They have the best chicken shawarma's in Detroit in my opinion. Other restaurants may offer the same product at different prices but none really compares to that of Bucharest. Even if they raised the prices of the products they would not lose their customer loyalty. There is really no evidence of efficiently or inefficiently with either of the examples I have described. Both in my opinion are based on supply and demand of that product or service.
Topic #3
Competitive markets are comparably more efficient than monopolistic markets as they provide consumers with reasonable and comparable prices, an extensive array of alternative products from which to choose, and the ability to opt out of using one product or service in favor of another (Keat, Young, & Erfle, 2013). Furthermore, there are relatively few limitations for companies aiming to break into a competitive market. If their product or service is competitive then the company can influence the market.
An example of a competitive market includes the mobile phone/smartphone market that has emerged over the last 10 years. In 2010 it was noted that each year over 1.3 billion mobile handsets were being sold and the number of smartphones comprised of annual mobile sales was around 20% (Kenny & Pon, 2010). Since then demand and sales of smartphones have increased exponentially and many companies report increases in smartphone sales by almost 100% each year over the past five years (Ahonen, 2010). It has been estimated that there are currently, at least, 2 billion smart mobile devices in use globally. As a result the mobile phone industry has become one of the most predominant competitive technical international markets. In fact, the competition in smartphone manufacturing has become increasingly intensive and aggressive, which has increased innovation and decreased prices as one would expect in a competitive market.
Each year or in some cases every 6 months, mobile phone manufacturers introduce smartphones with improved processing power, storage capacity, graphics capabilities, better cameras, and sound quality (Cipriani, 2015). The competitive market has significantly lowered the overall pricing strategies for company flagship phones and has also driven a competitive race to provide a flagship smartphone at a discount phone price. The best example perhaps is the OnePlus One model that was introduced in 2014, which had all the specs of the world's top smartphones but was available worldwide, at half the price. An additional example includes the Nexus products by Google prior to the current Nexus 6 model, which was much more expensive and broke their trend of offering top specs for considerably lower prices. The impact of the competitively priced, top spec smartphones has driven a demand in the market for more affordable flagship phones or for top tier devices with extraordinary capabilities. However, the latter is becoming much harder to create at such a fast turnaround rate so prices are steadily decreasing.
On the other hand, a monopolistic market is less efficient and consists of one company that provides a good or service to an entire market. As a result, innovation is often slower to proceed and pricing strategies are not influenced by competition (Keat, Young, & Erfle, 2013). Much has been reported regarding the various ways in which a monopoly can influence an economy. These include charging higher prices than may otherwise be charged in a competitive market, producing products with lower quality and impeding technological advancement in a given area, providing inferior services associated with their products, and influencing various political systems in order to perpetuate and extend a company's monopoly in a specific market.
The best example of a monopoly in the technology industry derives from the antitrust case against Microsoft in the mid 1990's (Butts, 2010). In the case, the US government alleged that Microsoft, the largest tech company as the time, had used its technology to maintain an illegal monopoly. The government contended that Microsoft had prevented the distribution of it's competitor's Web browser but this was not upheld at the district court level as it was stated that the competitor was able to gain a substantial share of the market. The government also contended that Microsoft practiced predatory pricing strategies to maintain its 90 % share of the PC operating system market. An appeals court ruled that Microsoft's strategies were monopolistic and the company reach an agreement to limit its competitive tactics against its rivals. Contracts of exclusivity were reduced and Microsoft was no longer able to offer selective price cuts to computer manufacturers for exclusive inclusion of their operating system. Many years later, Windows is still the world's predominant operating system and the steps that the government took to avoid a monopoly have not significantly influenced the company's global impact. The company had already established itself as the pre-eminent software company and builds upon that reputation with innovative additions and modifications of well recognized products.
In conclusion, the competitive technology market is a rapidly evolving market that provides a platform for innovation and price reductions. Conversely, the monopolistic market allows companies like Microsoft to slowly improve its PC products while maintaining a large market share. Microsoft was forced to transition from a monopolistic market into a competitive market but its established PC products were so widely used and recognized that the competitive impact was minimal. However, it has had to fight for a competitive market share with regards to smartphone operating systems, which are dominated by Apple and Google.
Topic #4
A monopolistic market is one in which that each seller in the market attempts to differentiate its product from the competition, meaning that they attempt to control their particular market (Keat, Young & Erfle, 2013). While a competitive market is a market in which for each of the products there is competition and not one product or company controls the market (Keat, Young & Erfle, 2013). Competitive markets are more efficient when compared to the monopolistic markets, first because good competition leads to innovation. This simple fact is proven in the tech world that your company's product will not be highly demanded if it is the exact same or worse than the competition. So it is better if there are some more advanced differences when comparing your product to the competitions (5 Reasons, n.d.). Another reason is that competition forces you to do more research and understand your core market (5 Reasons, n.d.). This is also important because it makes the people part of the company really do research in order to determine the different explanatory variables in order to determine which are important for the business model to succeed. The final reason is that if there is competition the business leaders can see what the other companies are doing correctly and incorrectly and learn from their mistakes as well as your own (5 Reasons, n.d.). This is also important because this will save the company time and resources and will also help determine the correct variables to pursue in order to have a successful company.
An example of a monopolistic market is the tennis shoe market. Each tennis shoe company attempts to differentiate themselves from each other and have different sports and activities that they claim they are better in. For example Nike claims to have the superior running shoe. They also differentiate themselves based upon style and fit of the shoe. An example of a competitive market that is present in today's world is cellphone providers. Now these companies have a strong sense of competition and tend to attempt to outduel each other. One of the ways they do this is currently by offering to buy out the contract of the other cell phone company (Paresh, 2014). This is an example of competitive market because in large cities most of the cellphone markets have equal service distribution but continually attempt to out perform each by advertising and other incentives offered with the cell phone service contract.
Overall, competitive markets are better in the sense they encourage innovation, the company will have to do research in order to better understand their customers and learn at a much faster rate and determine what the other companies are doing well and what they are not doing well. An example of monopolistic competition is the tennis shoe market. An example of a competitive market is the cellphone providers.
Topic #5
Competitive markets are said to have greater efficiency as compared to monopolistic markets for a number of reasons such as the existence of many substitutes, low prices are offered to consumers and the fact that there are minimal barriers as far as exit and entry into the market is concerned. In the short run period, the high level of competition in the market leads to rising market growth. The existence of many firms in the market drives the prices of goods available to consumers downwards as firms strive to remain competitive (Krugman, 2009).
Furthermore, competitive markets appear to have greater efficiency in comparison with monopolistic markets based on the understanding that there are many sellers and buyers. On the same note, none of the two parties have the ability of exercising control over the price or demand of products and services in the market (Colander, 2008). It is crucial to note the forces of the market influences the demand and prices of commodities. From the perspective of a monopolistic market which is represented by a single firm and many buyers, the price and demand of a commodity is not influenced by competition since there are no substitutes. This supports the consideration of competitive markets have greater efficiency.
A very good example of a competitive market in real life is the restaurant market. Consumers are provided with choices whereby they are required to choose which restaurant to visit and where they are guaranteed good food and a very comfortable sitting position. This market has many firms that provide close substitutes. In this case, some restaurants provide goods and services at low prices in order to become more competitive. There are also many willing buyers in the industry whose decisions are driven by how commodities are priced.
An example of a monopolistic market is the cable service industry which provides internet services. Irrespective of the region that one is located, it is only a given company that provides the service. In this regard, customers living in areas with low reception of internet tend to suffer since there is only one provider. In this market substitutes are limited (Colander, 2008).
A comparison of the two markets, there are more efficiencies within the restaurant market since there are numerous commodities available to meet the needs and demands of consumers. In the restaurant industry there is a high level of differentiation of commodities and services as each seeks to attain a competitive edge as well as gain a larger share of the market (Krugman, 2009). With respect to the monopolistic market, the level of efficiency is very low in meeting consumer demand. There are barriers to entry into this market hence the cable enjoys a lot of monopoly. It is vital to note that the firm is not affected by forces of the market hence consumers are forced to seek its services and goods even if they are of a poor quality. Therefore, competitive firms have greater efficiency than monopolistic firms.
Topic #6
A competitive market is one where there are a large number of places competing with each other to satisfy consumer needs and wants. In this type of market, only one producer or consumer cannot dictate the market or determine prices of products or services. A monopolistic market is "a common market structure in which firms have many competitors, but each one sells a slightly different product (Economics Online, para.1)".
A competitive market can be considered more efficient than a monopolistic one, because they offer lower prices to consumers and there are also many substitutes. Because there is competition in the market with a competitive market, prices remain low in order for businesses to have a fighting chance at selling products and services. Because of this, market prices of products and services cannot be dictated by a single business. With a monopolistic market, products and services are unique to the business offering little competition or substitutes.
An example of a competitive market is pizza because there are many businesses, and there isn't one individual producer that can affect the market price by increasing or decreasing output. With pizza, there are many different substitutes. There are many different businesses producing the same good under similar conditions. This market shows efficiency because there are many competitors entering and exiting the market. Prices remain competitive and there are many substitutes available.
An example of a monopolistic market is a cable company. In my town, there is only one cable service that you can get, Wow. This cable service tends to be a little expensive, and doesn't always provide the best services. People constantly complain about bad service, but nothing changes. People won't leave the company because there aren't many options. Because there are no other cable companies in the area, this allows the business to set the prices and services of their company. The only alternative to cable would be local channels only, or Dish Network or Direct TV service. Because of the lack of alternatives and consumers feeling "stuck" with their cable television, this type of market is not efficient.
Topic #7
Competitive markets allow firms to sell a lot of their products as they can profitably at the minimum price which allows those companies to keep running. In a competitive market society will get the lowest price and in the long run the cost will be lower too. Compared to a monopoly the competitive market yields maximum profits, this can mean that there are no excess costs, so it is considered the most efficient (Bain, 2015). An example of this can be grocery stores and restaurants. Even though they are not really considered to be a true perfect competitive markets, it can actually become a real problem if certain chains of grocery stores can become monopolies. If only one grocery chain runs throughout a city, it can increase its prices and it will be tough for anyone to say anything. When there is no competition in certain places, stores can raise their prices of products knowing that they can get away with it. Where I live in the state of Montana, there is a grocery chain called Albertsons. The prices on vegetables that they have are really high, and there is no other place that can compete with this grocery store. So the prices stay the way they are.
An example of a monopoly can also be a chain or a restaurant. Some small towns have only one restaurant that provides services. This not only controls the prices for what people want to eat, but also can play a part in controlling the job market as well. People would not have the option of not working, either you work at the restaurant or there is no job. This can lead to a monopolistic action and in a way it is not that efficient for the people. For the restaurant it is efficient because they know they can get away with what they are doing because there is no competition.