Question

Market Structure: Discuss how the four markets for product form a continuum - from least competitive or monopoly to infinitely competitive or perfect competition. Provide examples.

Real World of Imperfect Competition: Discuss how monopolistic competition and oligopoly form the real world of imperfect competition. Provide examples.

Price Discrimination: Discuss the concept of price discrimination and the economic rationale for charging the lowest price. Provide an example such as air tickets.

Answer 1

Answer 1:

The four forms of market structure are - Perfect Competition, Monopoly, Monopolisitic Competition and Oligopoly.The lest competitive is the one which has sole seller of the product and this invlves monopoly. For example, raliways and public transport. One step ahead of monopoly is oligopoly which mainly includes few firms having strategic relationship with each other and there is restriction on entry and exit of firms in the industry. For example, airline industry. In the next step, is monopolisitic competition which has many firms and there is no restrcition on entry and exit of new firms in the industry and the most competitive is Perfect Competition with infinite number of firms selling homogeneous product with free entry and exit of firms from the industry.

Answer 2:

In the real world, products sold are differentiated in most of the markets and strategic relationship between firms play an important role. It can be seen in products of daily use like grocery to luxury goods like automobiles, air travel. Most of the firms in the industry have monopolisitic competition and oilgopoly form of market structure.

Answer 3:

The process of charging different prices to different groups of consumers or different markets is referred to as Price Discrmination. There are three degress of price discrimination. In the first degree, different consumers are charged different prices based on their reservation price. In the second degree, volume discounts are given to consumers. In the third degree, different prices are charged in different markets.By charging lowest price, the producer can increase sales and thus increase its profits.In case of ait tickets, third degree price discrimination is followed with more prices being charged to business class travellers and less prices to economy class travellers because of difference in elasticity of demand.