Monopoly and Monopolistic market structures

MONOPOLY AND MONOPOLISTIC MARKET STRUCTURES 7

Monopolyand Monopolistic market structures

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Businessenvironmenthas variousexisting formsof marketstructures.Investors putvariousfactorsinto considerationbefore establishingventures.Variousrulesexistto definethedirectionsto be takenby thebusinesses.MonopolyandMonopolistic marketsare someof theformationsthat existin themarket.Monopolymarketsenjoyverylimitedcompetitionwhilemonopolistic marketshaveto putin a lotof measuresto counter thestiffcompetitionthattheyface.Thispaperwill focuson two companiesEast Midlands Train that is a monopolyandMcDonalds that operatein a monopolistic market.

EastMidlands Company is a passengerferrying companythat operatesfrom East Midlands in theUnited Kingdom. Thecompanyofferslongdistanceservicesto passengerstravellingto theNorthern andEastern partof England from London, South Yorkshire, andMidlands. Thecompanyoperatesas a monopolyin East Midlands forvariousreasons.First,thecapitalinvestmentinjectedinto thebusinessis sobigto be affordeda singleinvestor. Thecapitalinvestmentsincludethecarriertrainsandtherailwaynetworksand,forthisreason,thebusinessis leftto operateas a monopoly.Secondly,there is noclosesubstituteforthisserviceunless passengersuseothermeanslike airorbuses.However,travellingby busmay be tediousespeciallyforlongdistancesto Northern partof England.

McDonaldsis a fastfoodoutletfoundedin theUnited States of America buthas spreadto differentpartsof theworldto becomean internationalcompany.In theUnited Kingdom, McDonalds has over1200 outletslocatedin majorterminalsandbusystreets.Thewidecoverage is an effortby thecompanyto beatthecompetitionof otherfoodoutletsin theUK. Thecompanyoperatesin a monopolistic marketsince there are manyfastfoodcompaniesin theUK that focuson establishingthemselves in busystreetsandterminals(McDonalds, 2014). Thesecompaniesincludelongjohn silver, Nandos, KFC, Dunkin Donuts, Jollibee, Round tablepizza among others. Thecompetitionleadsto a lotof differentiationthatis necessaryfora variedthepresentationof fastfoodsto thecustomers.

Boththemonopolyandmonopolistic marketshavevariouscharacteristics.Themonopolyremainsa dominantestablishmentin anymarketenvironment.Thetwo differin variousaspectsFirst, there is onlyone provider of services.Unlike in othermarketswherethere are manycompaniesprovidingsimilargoodsandservices,theservicesprovideby a monopolydonot haveanycompetitionfrom othercompanies(Pettinger, 2012). Agoodexampleis theEast Midland traincompany.In thisregion,thecompanyis thesoletrainservicesprovider.

Thereis alsoa restrictedentryinto themonopolymarket.Theinstitutionsthat setup monopoliesensurethattheinitialcapitalis toohighto be affordedby privateinvestors. Therestrictionscomein termsof thestrictrulesof enteringthemarketandhugecostof capital.Forexample,theEastland traincompanyinvestsmorethe30 million poundson their carriersandmorethan 40 million poundsto putup theterminals.Theamountquotedhereis exclusiveof thecapitalspenton settingup therailwaylinesacross theregion(Pettinger, 2012). Thebusinessthusbecomesdifficultforprivateinvestors to settheir feeton it.In a monopolistic market,thepioneerinstitutions do not influence the entry and exit out of the market.Investors onlyneedto identifyfavorablegapsto into themarket.

Theinitialcostsof puttingup a businessare affordable by a singleinvestor. Mostof thesecompaniesmostlyoffergeneralservicesto consumerslike healthcare,food,beverages,communication,andclothingamong others (Riley, 2012). Thefastfoodindustryin theUnited Kingdom that has morethan 30 playersrepresentsa monopolistic market.Competitionforfavorablespaceandmarketshareis an everydayexperience.

Ina monopoly,thecompanyprovidinggoodsandserviceshasthesoleresponsibilityforsettingtheprice.Thepricelimitsare not under thecontrolof thepowersof demandandsupply(Pettinger, 2012). Prioragreementsandotherfactorslike loyaltydeterminethepriceschargedon goods.In a monopolistic competition,pricedeterminationis determinedby thecostof productionof thegoodsandservicesas wellas themarketpricesof othersimilarproductsof differentcompanies.Thepricetaggedon theproductsis a reflectionof thecostof production.Thecompaniesstriveto minimizethecostof productionin orderto maximize theprofits.

Thefigure above is a representation of a monopolistic market in theshort run. Due to few companies, the pioneer company enjoys hugeprofits. However, as new companies enter the market, the company goeson to make normal profits until equilibrium gets attained. Atequilibrium, the marginal cost is equal to the marginal revenue(MC=MR) (Riley, 2012).

Figure2 is a representationof a monopolymarket.Amonopolysetsits pricesince there is nocompetitionin themarket.At thispoint,theMarginal revenueandaveragecostsare at per (MR=AC). Asthefirm expands,thediseconomies of scaleaffecttheprofitsenjoyed.Thesupernormal profitsgeta slash until Marginal Cost equalstheMarginal Revenue (MC=MR) (Pettinger, 2012).

Competitionis anotherfactorthat differentiatesthetwo marketstructures.In a monopoly,there is nocompetition.Thesoleprivilegeof providingservicesgivesthesecompaniesa chanceto offergoodsandserviceswithout puttinga lotof effortsto woocustomers(Pettinger, 2012). Theenvironmentis differentin a monopolistic marketwherebycompaniesemploya collectionof methodsto woocustomers.Themethodsincludeadvertising,strategiclocations,productdifferentiation anddiscounts(Riley, 2012). McDonalds spenda significantamountof its returnson advertisingandcompetingforstrategiclocationsin theUnited Kingdom.

Thenatureof a marketstructureaffectsthecompanyandtheconsumers.First,businessdecisionsrevolvearound theprevailingmarketcondition.In monopolistic markets,competitionaffectsthedecision-making processsince majordecisionswill aimto counter thiscompetition.Theavailableopportunitiesfora businessto thrivegetdictatedby themarketstructure.Marketsthat allowfreeentryare favorablefornewentrantsandtheexpansionof alreadyestablishedventures.Consumersalsoexperiencetheeffectof marketstructures.Afavorableconsumerenvironmentgetsfavorablewhenthere is a presenceof high-quality goodswith affordable pricesin themarket.Amonopolysettingmay offerexpensivegoodsdue to lackof competition.Customerswill haveto goforthesegoodsdue to lackof closesubstitutes.In a competitivemarket,customerschosegoodsfrom a widevariety.Qualityandpriceof thegoodshavetheinclinationof beingtailored to suittheneedsof customers(Markgraf, 2012).

Inconclusion,Monopolistic andmonopolymarketstructuresdirectlycontrasteachotherin their operations.Theformeris under thecontrolandinfluenceof theprevailingmarketconditionssetby thecompetitorsandotherimportantkeyplayerswhilethelatterdecidesits businessdirection.East Midlands trainservicesenjoythesoleprovisionof services.On theotherhand,McDonalds operatesin a competitiveenvironment.However,bothstructuresapplymarket-tailored measuresto enhancetheir survival.

References

MacDonalds.(2014). MacDonalds’development in the United Kingdom.Retrieved from http://www.mcdonalds.co.uk/ukhome.ht

Markgraf,B. (2012). How does a market structure positively and negativelyaffect a firm? DemandMedia. Retrieved fromhttp://smallbusiness.chron.com/market-structure-positively-negatively-affect-firm-78927.html

Pettinger,T. (2012). Market structures: Monopoly Markets. EconomicsSimplified.Retrieved fromhttp://www.economicshelp.org/microessays/markets/monopoly-diagram/

Riley,G. (2012). Monopolistic Competition. Businesseconomics.Retrieved fromhttp://tutor2u.net/economics/revision-notes/a2-micro-monopolistic-competition.html