Question

Identify a good/service that you have recently purchased from a perfectly competitive firm, monopoly, monopolistically competitive firm, and oligopoly in the past month. Relate your answer to the market characteristics. Evaluate what market structure is better for a consumer and seller.

Answer 1

The regular purchase from local farmer's market is an example of purchasing from Perfectly competitive firm. Because, there are a large no. Of farmers selling the same vegetables and fruits. It's really easy for a buyer like me to find out the price for a particular good, but prices are same at almost every stall.

The local cable company which provides cable services to our area is the monopoly, because it is the only cable service supplier in our area. As there are no other service providers, therefore buyers like us are bound to buy the company's service with the price it has set.

The fast food center I usually go once a week can be considered as monopolistically competitive firm. Because, there are many other fast food center(for example- KFC, MacDonald, Burger King) operating in the market and among them some are large firms and some are small. However, they have their own price set for the foods they provide and no individual firm controls the market.

The MacBook my Friend bought last week , is an example of purchasing from oligopolistic market. Because, as the characteristics of oligopoly states that, it has only a few large no. Of Sellers, the computer OS is also overshadowed by Apple and windows. There are barriers to entry into the market and a few price control can be seen.

Though perfect competition sounds more desirable as it is both allocative and productively efficient, but in perfect competition there is no scope for economies of scale, because there are many firms producing small amount of output. As products are homogeneous, therefore there exists only a little consumer choices.

But in monopoly, monopolists have economies of scale, which can lead to lower price for consumers and more scope for consumers choices. Therefore, it can be said that monopoly is a better market structure for both consumers and sellers though it causes deadweight loss to the society.