Question

PART C:
A market is a forum in which people come together to exchange ownership of goods; a place where goods or services are bought and sold.
REQUIRED:
2.5 Describe the three (3) models of market competition. (6)
2.6 List three (3) characteristics of a monopolistic market. (3)
2.7 State five (5) unethical practices in oligopolistic markets. (5)

Answer 1

(2.5)  There are 4 basic market models of competition: pure competition, monopolistic competition, oligopoly, and pure monopoly.

In a purely competitive market, there are large numbers of firms producing a standardized product. Market prices are determined by consumer demand; no supplier has any influence over the market price, and thus, the suppliers are often referred to as price takers. Best examples are agricultural products such as corn, wheat etc.

Monopolistic competition is much like pure competition in that there are many suppliers and the barriers to entry are low. However, the suppliers try to achieve some price advantages by differentiating their products from other similar products.

For instance, suppliers of toothpaste may try to convince the public that their product makes teeth whiter or helps to prevent cavities.

An oligopoly is a market dominated by a few suppliers. Although supply and demand influences all markets, prices and output by an oligopoly are also based on strategic decisions: the expected response of other members of the oligopoly to changes in price and output by any 1 member. Example :Auto manufacturers

A pure monopoly has pricing power within the market. There is only one supplier who has significant market power and determines the price of its product. Example : Microsoft

(2.6)  The key characteristics of monopolistic market are:

(1)There are large number of small firms,

(2) Similar products but not identical products sold by the firms,

(3) There is relative freedom of entry into and exit out of the industry.

(2.7) UNETHICAL PRACTICES IN OLIGOPOLISTIC MARKETS:

• Price – Fixing.
• Manipulation of supply by the suppliers.
• Exclusive dealing arrangements amongst suppliers.
• Tying Arrangements.
• Retail Price Maintenance Agreements and
• Price Discrimination.