Length 3,000 words Please note that this question requires substantial research (see the assessment criteria below). (a) Explain the differences and common features between oligopoly and monopoly...

a)
Market structure plays an important role in the study of Microeconomics. It has huge
implications in both economics and business. The nature of market structure is vital for every
usiness i
espective of its size and nature. It provides the important guidelines in strategic
decision making analysis. All the essential business strategies are significantly influenced by the
market structure in which the firm operates. The market structure can be categorized as perfect
competition and imperfect competition in the
oader scale. Imperfect competitive markets
include monopoly, monopolistic competition and oligopoly markets. Let us examine the key
differences and key features of monopoly and oligopoly market structure.
Monopoly Market
There is only in seller in the monopoly market. Being the sole seller, the monopolist does not
experience any form of competition in the market. The key feature of the monopoly market is
nothing but huge entry ba
iers. New firm find it increasingly hard to enter the market or start the
same business. Ownership of key input, high infrastructure cost, copyright, patents or economies
of scale are identified some of the major entry ba
iers. So the monopolist firms enjoy the
absolute control over the market. Due to its supreme market power, the firm is in the position to
determine both the profit maximzing price and quantity but definitely not at the same time. As
long as the firm remains monopolist in the market, it does not face any uncertainty over its
profitability. The firm can obtain the economic profit both in the short run and also in the long
un.
The above figure shows the profit maximizing behavior of monopoly both in the short run and in
the long run. As the profit maximization rule, the monopolist will produce at the equality point of
MR and MC. The price can be determined by the co
esponding AR curve. Total revenue =
OP*AQ* whereas the Total cost= OQ*CB. Profit is shown by the green shaded rectangle
BP*AC. From the efficiency point of view, monopolist is found to be inefficient with
misallocation of resources. Neither the productive efficiency nor the allocative efficiency can be
achieved in monopoly market. Due to absolute market power, monopolist usually charge much
higher price making the consumers worse off. The monopoly market structure is consistent with
a deadweight loss that is nothing but the cost to the society.
Another key feature of monopoly is price discrimination- that it can charge different prices for
different segments. In order to have an effective price discriminating strategy, the customer
profile should different price elasticity‟s. The monopolist can charge the different price
Price
ATC
MC
AR
MR
Output Q*
P*
Profit
O
A
B
c
according to the price sensitivity of the customer group. For example, airlines charge different
prices for the business travellers and the vacation travellers. We can refer the movie ticket
pricing as another example where different ticket price charged for adults and the students. The
sole objective behind the discriminating strategy is to earn more profit. The profit is substantially
higher for the discriminating monopolist compare to the single price monopolist. (Mcconnell,
2013)
Oligopoly
Oligopoly market structure is another form of imperfect market largely dominated by few large
firms. They only constitute the larger share of the market. The market is consistent with heavy
entry ba
iers – economies of scale or high infrastructural cost are some of the major ba
iers to
entry. Airline industry, Automobile industry or soft drinks industry are some of the common
examples of oligopoly market.
Interdependence among the oligopoly firms is the one of the salient feature of such market
structure. Any marketing decision of one firm has a profound impact on the decisions of the
other. They often engage in price wars in order to gain larger market share. For example if coke
makes any changes in their marketing or pricing strategy, Pepsi will immediately response with
similar strategy.
If we assume there are only two oligopoly firms, it refers as duopoly. In Cournot‟s duopoly game
, Nash equili
ium occurs at the point where two best response function intersects to each other.
Neither firm has any intention to change their strategy, given the strategy for the other. The
strategic business decisions and the reactions of the oligopoly firms can be presented and
analyzed in game theory. Since oligopoly firms enjoy significant market power they can also
enjoy positive economic profit both on the short run and long run. Oligopoly firms are also
associated with deadweight loss to the society. (Mcconnell, 2013)
Differences in key features of monopoly and oligopoly:
1) In monopoly the number of seller is only one but in oligopoly we have few large sellers
in the Market.
2) Firms may collude in oligopoly, act like a monopoly and maximize the joint profit. They
share the profit equally. This is the unique feature of oligopoly where the firms cooperate
ather than compete and transform the market as monopoly.
3) Monopoly can discriminate the price for the same product to different price sensitive
uyers, but price discrimination does not applicable in oligopoly.
4) Patents, government regulation, high infrastructure cost are some of major ba
iers to
entry in monopoly. But in oligopoly economies of scale acts as the major entry ba
ier.
5) Reaction function or best response functions have severe implications in oligopoly or
duopoly market but in monopoly it does not make sense as there is single seller in the
market.
Nash equili
ium
BR for firm 1
BR for firm 2
Firm 2
Firm 1 Q1*
Q2*
6) Prices are much higher in monopoly but it is moderate or fair in oligopoly due to
competition in the market.
7) Microsoft or De beer is the example of monopoly whereas coke and Pepsi are the
example of oligopoly.
(b)
Construction Industry in India: an overview
Construction industry is recognized as a major contributor to India‟ GDP- it plays a vast role in
the country‟s economic growth and prosperity. Real estate industry is huge, complex and highly
volatile. The housing market index is one of the key macroeconomic indicators to assess the
economic health of any nation. Any economic fluctuations are first reflected in the index of
housing market. It has a direct impact on economy‟s...