Research Help 2

by


 

 

 

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

 

Sha-Nicca A. White

Liberty University

BUSI 620 – Global Economic Environment (D02)

Prof. Andrew Light

01 December 2022

 

 

 

 

 

 

  1. Introduction
  2. Definition of Managerial Economics

The application of economic theories and analysis to business choices is known as managerial economics. It offers managers a framework for choosing how to distribute resources in order to achieve desired goals.

  1. Definition of Market Types

Competitive, monopolistic, and monopolistically competitive marketplaces are the three primary types. Every market type has unique traits that influence how managers must make decisions in order to succeed.

  1. Competitive Markets

Markets that are competitive have numerous buyers and sellers of a given good, and each buyer and seller has only a modest influence on the market price. To draw clients in a competitive market, businesses must compete on pricing.

  1. Monopolistic Markets

Monopolistic markets are those in which a product is sold by just one seller. In a market with a monopoly, the company sets the price for the good.

  1. Monopolistically Competitive Markets

Monopolistically competitive marketplaces are those where a product is sold by many different sellers, each of whom offers a distinct good. Companies must compete on pricing and product quality in a monopolistically competitive market in order to draw customers.

  1. Thesis Statement

To be effective, managerial decisions in each of the three market types must take into consideration its particular qualities. The various facets of each market type will be covered in detail, along with how they influence managerial choice-making. I’ll also give illustrations of each kind of market.

  1. Competitive Markets
  2. Definition

It is a market with several purchasers and vendors of a specific good who have minimal influence over the market price (Mixon, 2020). Companies compete on price to win over customers.

  1. Characteristics

To make decisions as a manager in a competitive market, it’s critical to comprehend a few characteristics of competitive markets:

  1. Businesses in a market with competition are price takers, which means they have no control over the cost of their goods. They must consent to the market price instead.
  2. In a market where there is competition, businesses would maximize their earnings by producing as much as possible.
  3. In a market that is competitive, businesses are allocatively efficient, which means they produce at a level that optimizes social welfare.

When a good’s marginal benefit and marginal cost are identical, allocation efficiency is achieved.

  1. Examples

The wheat market is an illustration of a competitive market. Wheat is produced by many farmers, and the market price is only little influenced by each of them. To sell their grain, farmers must engage in price competition. The market for automobiles is another illustration of a competitive market. There are numerous automakers, and each one has a negligible effect on market prices. To sell their cars, manufacturers must compete on price.

III. Monopolistic Markets

  1. Definition

A monopolistic market is one in which only one product seller exists. In a monopolistic market, the firm has complete control over the price of the product.

  1. Characteristics

There is no competition in a market that is monopolistic. Since consumers may only purchase from one supplier, the company has no incentive to reduce costs or raise quality. This might result in more expensive products and services with lesser quality. Lack of rivalry also prevents the business from being motivated to innovate or spend money on R&D. (Gans, 2022). This may result in a shortage of new goods or services, which would limit the possibility of economic growth. Additionally, the company may utilize its influence to engage in anti-competitive behavior, such as blocking the entry of new competitors or conspiring with other companies to reduce competition (Feichtinger et al., 2022). The economy may suffer as a result since less opportunity for competitiveness and innovation exists. Monopolistic marketplaces can also result in inequality, to sum up. Due to a lack of labor competition, the company may utilize its influence to negotiate lower salaries for its employees. High levels of poverty and economic inequality may result from this. Monopolistic marketplaces are frequently subject to government regulation to guarantee that consumers and society are served.

  1. Examples

The market for Microsoft Office is one instance of a monopolistic market. As the sole manufacturer of Microsoft Office, Microsoft has exclusive control over pricing. The diamond market stands out as another monopolistic market illustration. Diamonds are only produced by one corporation, which sets the price.

  1. Monopolistically Competitive Markets
  2. Definition

A monopolistically competitive market is one in which there are many sellers of a product, but each seller offers a unique product (Dean et al., 2020). In a monopolistically competitive market, firms must compete on price and product quality to attract customers.

  1. Characteristics

To make judgments as a manager in a monopolistically competitive market, it is crucial to comprehend a number of monopolistically competitive market features. In a monopolistically competitive market, corporations can set their own pricing for their products since they are price makers (Baye & Prince., 2022). They will create the amount of stuff that will maximize their earnings since they are profit maximizers. If a company is allocatively efficient, it will create the amount of output that optimizes societal welfare in a monopolistically competitive market (Cowling & Nadeem, 2020). In contrast, if a company is not allocatively efficient, it is not producing as much as would maximize social welfare in a monopolistically competitive market.

  1. Examples

The restaurant industry is a prime example of a monopolistically competitive market. There are many restaurants, but each one has a distinctive menu. To draw customers, restaurants must compete on both pricing and product quality. The clothes market is another illustration of a monopolistically competitive sector. Although there are numerous clothing firms, each one has a distinctive product to offer. To draw clients, clothing businesses must compete on pricing and product quality.

  1. Conclusion

The application of economic theories and analysis to business choices is known as managerial economics. It offers managers a framework for choosing how to distribute resources in order to achieve desired goals. To be effective, managerial decisions must take into account the particular traits of each type of market. Competitive, monopolistic, and monopolistically competitive marketplaces are the three primary categories. Every market type has unique traits that influence how managers must make decisions in order to succeed. The consequences for managers are that in order to successfully make decisions, they must consider the distinctive characteristics of each market type. Managers must understand that they are price takers in a competitive market and that they must compete on price to get clients. Managers must be aware that they are price makers in monopolistic markets and have total power over product prices. Managers must understand that they set prices in monopolistically competitive markets and that companies must compete on both price and product quality to win customers. To be effective, managerial decisions in each of the three market types must take into consideration its particular qualities.

 

 

References

Baye, M. R., & Prince, J. (2022). Managerial Economics and Business Strategy (10th ed.). McGraw-Hill.

Cowling, M., & Nadeem, S. P. (2020). Entrepreneurial firms: With whom do they compete, and where? Review of Industrial Organization, 57(3), 559–577. https://doi.org/10.1007/s11151-020-09782-y

Dean, E., Elardo, J., Berger, S., Wilson, B., & Green, M. (2022). Monopolistic competition. Principles of Economics Scarcity and Social Provisioning 2nd Ed. Principles of Economics Scarcity and Social Provisioning 2nd Ed. Retrieved November 28, 2022, from https://openoregon.pressbooks.pub/socialprovisioning2/chapter/13-1-monopolistic-competition/

Feichtinger, G., Lambertini, L., Leitmann, G., &Wrzaczek, S. (2022). Managing the tragedy of commons and polluting emissions: A unified view. European Journal of Operational Research, 303(1), 487–499. https://doi.org/10.1016/j.ejor.2022.02.034

Gans, J. (2022). AI adoption in a monopoly market. National Bureau of Economic Research. https://doi.org/10.3386/w29995

Mixon, W. I. (2020, January 31). A computational analysis of monopolistic competition – researchgate. Researchgate.net. Retrieved November 28, 2022, from https://www.researchgate.net/publication/338955105_A_Computational_Analysis_of_Monopolistic_Competition