Economic Market Analysis of Paraguay

BUS530 Case 3
Your Name
Trident University International
BUS530 Managerial Economics
Due Date
BUS530 Case 3: Paraguay
Paraguay is Sot American country with an economy dominated by agriculture and the energy sector. The country has industries that fall into monopoly, oligopoly and perfect competition market structure. These industries include the electricity, fuel, and soybeans sectors.
Monopoly: Electricity Sector in Paraguay
Monopoly is a market structure where one company controls the market output (Loo, 2023). Because such a firm does not face significant competition, it sets the price of the commodities in the market subject to the demand for the commodity (Greenlaw & Shapiro, 2017). Although a monopoly is defined as one firm controlling the market output, the term is often used to refer to a firm that controls the largest market share where other firms providing the same goods and services exist.
Paraguay's electricity sector is concentrated in one vertically public monopoly, the National Electricity Administration, or Administración Nacional de Electricidad (ANDE). ANDE is state-owned and controls the whole of Paraguay's electricity market, including generation, transmission and distribution (Santos et al., 2014). ANDE carries out all the responsibilities in the electricity sector, including setting up the tariff rates, which the Economic Council of the Executive Power then approves. In most cases, the council lowers the tariffs from that set by ANDE to cushion the consumers. This questions the status of ANDE as a monopoly because it does not entirely control the pricing and tariff system. However, its sole responsibility to control the entire electricity centre in Paraguay qualifies it as a monopoly.
ANDE was formed in March 1949 as a decentralized institution of Public Administration with legal status. It operates three primary dams that provide hydroelectricity. These dams are Itaipu, Yacyretá and Acaray. It also operates 2100 miles of transmission lines serving the whole of Paraguay. ANDE has been instrumental to Paraguay because it has helped the country collaborate with neighboring countries in power production. Itaipu dam, with a capacity of 14,000 MW, is operated in collaboration with Brazil, and Yacyretá, with a capacity of 3,200 MW, is operated with Argentina (Santos et al., 2014). Therefore ANDE, the public monopoly utility, has brought Paraguay economic and relational benefits.
Oligopoly: Fuel sector in Paraguay
An oligopoly, like a monopoly, is a market structure consisting of a small number of large firms selling similar or differentiated products or services (Loo, 2023). The competitive strategies of these firms depend on one another because they are few in the industry. For instance, the rest of the companies may lower their prices when one of them lowers to continue selling their products. Firms in an oligopoly market structure may agree to share the market by restricting production when the companies mutually compete (Greenlaw & Shapiro, 2017). Such an agreement only works when any of them honors the Nash equilibrium state, and none is tempted to engage in the prisoner's dilemma. This way, they work like monopolies in collusion called cartels.
Th...