A Perfectly Competitive and a Monopolistic Market Structures

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A perfectly competitive market and a monopolistic market are 2 market structures which have a number of major differences, for instance with as regards barriers to entry, price control, as well as share of the market. This paper provides an exhaustive discussion of the perfectly competitive and monopolistically competitive market structures, and the main factors which differentiate them are identified. Two different Australian industries which represent monopoly and monopolistic competition are identified and discussed. The characteristics of these industries and their products which can be utilized to explain the differences between these two market structures are discussed. Lastly, different price discrimination strategies that are available to business organizations are described, and the price discrimination behaviour of the previously identified industries are evaluated.
1.0 Perfectly competitive and monopolistically competitive market structure
1.1 Perfectly competitive market structure
The 4 main features of a perfectly competitive market structure are as follows: undifferentiated products and services; there are many small companies; there is perfect knowledge of technology and prices; and there is perfect resource mobility/no barriers to exit and entry (Romano, 2012). Large number of small companies: a market structure which is perfectly competitive is made up of many small companies and each of these firms is comparatively small in comparison to the overall size of the market. This makes sure that not any one company is able to wield market control over quantity or price. If one company in a perfectly competitive market decides to increase its output by twofold or to completely cease producing its products, the market would not be affected. In essence, the price will not change (Peress, 2010). Furthermore, there would be no perceptible change in the quantity that is exchanged.
Companies produce identical, undifferentiated products: every company in a market that is perfectly competitive sells a similar good, often referred to as homogeneous products. The main characteristic of this feature is not really that the products sold are not perfectly or exactly identical, but that consumers are not able to notice any distinction. Consumers are particularly not able to tell which company makes which particular product. There are no unique features such as brand names which distinguish products by company. This basically implies that each company in a perfectly competitive market structure produces a product which is actually a perfect substitute for the output of every other company within the market (Peress, 2010). For this reason, no single company could charge a different price compared to the price that other companies charge. If any company tries to charge a higher price, the consumers would shift straight away to other products which are perfect substitutes.
Perfect resource mobility or freedom to exit out of and entry into the industry: in a market structure that is perfectly competitive, companies are free to enter an industry or leave it. The companies are actually not limited by start-up costs, government regulations or rules, or any ...