Economics for Business Assignment Sample
Module Title – Economics for Business Assignment Sample
1. Nature and attributes of different market structures
The term market depicts the proper exchange of services, goods through mediating agents, institutions or direct contact between buyers and sellers. According to Bansal et al. (2022), the market represents the proper trade of goods and services along with a proper allocation of resources. It has been noted that the market valuation in economics varies based on operational fragility. As argued by Bansal et al. (2022), the market valuation, as well as operational fragility, has made the global market more susceptible to the negative effects of the Covid-19 pandemic. In addition to this, the preferences of the customers vary and this sudden shift has caused uncertainties in the global market effectively. According to Acevedo et al. (2022), the consumption patterns of the customers are distorted and market anomalies are observed mainly during the pandemic. For example, customer demands are high in the case of hospitality industries during the pandemic. Hence, tourism, as well as hospitality industries, has increased the market value by adopting new technologies and safety protocols (Wu and Riantama, 2022). Thus, it can be argued that success in the markets depends upon the consistency in operational efficiency as well as productivity of the firms.
The market structure represents the classification of different industries as well as firms based on the nature of their goods as well as competition. The relationship between sellers and buyers is depicted through a proper market structure. In addition to this, a proper market structure enables organisations to increase their profitability by selling sufficient goods to customers (Wu and Riantama, 2022). There are various features of the market structures and these include customer turnover, nature of input costs, product differentiation, and many others. It has been observed that there are mainly four types of market structures. They are perfect competition, monopolistic competition, monopoly as well as oligopoly.
Perfect competition– Effective competition occurs when several small organisations compete against each other to gain a competitive advantage. According to Zennaro et al. (2022), the integration of consumers is significant in perfect competition. This is because organisations gain high profitability by developing limited products to consumers’ preferences. As argued by Kunc et al. (2022), consumers of perfect c-competition markets are well aware of the prices as well as branding of the products. However, these types of a market structures face various criticisms because of less opportunity in innovation and economic hurdles to enter new markets. Agriculture, Foreign Exchange markets are some of the examples of perfect competition marketing structure.
Figure 1: Perfect Competition (Source: Kunc et al. 2022)
Monopolistic competition– This type of marketing type includes traits as well as characteristic features of both monopoly and competitive markets. According to Xu and Guo (2022), the pricing power of firms reaches the maximum when there is monopolistic competition. It can be argued that in the short-term plan, the marginal revenue of the firms becomes equal to the marginal costs. Thus, firms under monopolistic competition gain high profits in the short term. As stated by López-Rabadán (2022), Google, Facebook are some of the examples of platforms under monopolistic competition. This is because these platforms undertake innovations as well as developments irrespective of the effects of high prices.
Figure 2: Monopolistic competition (Source: Xu and Guo, 2022)
Monopoly- A monopoly market states that a single firm represents the total industry without having any competitors. It has been observed that Amazon in the UK enjoys a monopoly in retail markets because of its increasing productivity as well as profitability. In addition to this, the perfect example of monopoly markets in the UK is Covid-19 vaccine markets. As stated by Jecker (2022), COVAX vaccines act as monopoly markets and have provided benefits to a number of citizens in the UK. According to Jovičić et al. (2022), the outputs of organisations in monopolies are quite high and thus, increasing the profitability as well as productivity of firms. Under a monopoly system, companies become the sole seller and decide prices based on their own decisions.
Oligopoly- Under oligopoly markets, fewer numbers of very large companies are present. According to Zennaro et al. (2022), the positive effects of consumer integration are less significant in the case of oligopoly markets. This is because the competitive strategies, as well as strategic planning of the companies, are dependent upon each other. As stated by Long and Zhao (2022), resource allocation must be done properly in the oligopoly markets so that the firms attain a high competitive advantage and profitability. TESCO, Sainsbury in the UK are some of the examples of firms that are under oligopoly markets.
2. Perfect competition to monopoly, monopoly to monopolistic competition, and oligopoly
The assumptions of the perfect competition model depict that a large number of companies produce huge quantities of goods. The reason behind the production of huge quantities of goods is mainly because of the large number of consumers in the market. The assumptions are made on the fact that firms under perfect competition produce identical goods. It can be argued that the development of identical goods is necessary when the firms are treated as price takers. According to Kotnik (2021), perfect competition acts as an important marketing element in an open economy and helps firms in attaining high profitability as well as productivity. Depending upon the assumptions made on the number of buyers and sellers, perfect competition markets decide their profits to a great extent. As argued by Nascimento et al. (2021), firms present in a perfect competition market can only react to the effects of the prices. However, they are unable to affect the prices required for production as well as raw materials. Thus, it is necessary to assume the number of sellers as well as buyers so that the competitive advantages of firms are increased. As stated by Kotnik (2021), easy existence, as well as easy entry, is achievable with the help of a model of perfect competition. The assumptions of easy entry and exit are important so that firms do not achieve less profit in long-term contracts. Thus, the assumptions on perfect competition marketing models are effective and help the organisations to achieve high profit.
Figure 3: Differentiation of types of firms (Source: Kotnik, 2021)
The assumptions of a monopoly include three assumptions and these are single firm, unique product as well as entry barriers. According to Niemczyk et al. (2022), monopoly consists of single firms and these comprise all the outputs of the industry. It has been observed that the supply and product demand curves of the firms are the same as that of the industries. As argued by Zhang et al. (2022), unlike perfect competition monopoly does not allow any other competitors to operate in the economic market. The assumptions of perfect competition are different from that of monopoly because of the development of only one kind of product under monopoly markets. It can be taken as an example that before the year 1980, the consumers in the UK can buy cooking gas (British Gas) only from one supplier. As argued by Nascimento et al. (2021), monopoly markets face political, legal as well as structural barriers, unlike the perfect competition. It has been observed that legal barriers include registration as well as certification of businesses. Structural barriers include product differentiation as well as new business opportunities.
There are various assumptions made upon monopolistic competition and some of the assumptions are described thoroughly. It has been observed that firms such as Google, Facebook operate under a “monopolistic competitive industry”. As stated by Zhang et al. (2022), monopolistic competition provides a competitive advantage to the firms as these are mainly an intermediate of monopoly as well as a competitive market. It has been assumed that each firm under monopolistic competition develops new differentiated products. This assumption is valid as based on the quality of products competitive advantage of firms is achieved. According to Park et al. (2021), there are two groups of participants in the monopoly structure. They are producers as well as consumers and trade between them is achieved using a proper equilibrium between monopoly and competitive market. As stated by Niemczyk et al. (2022), organisations under monopolistic competition are differentiated based on the varieties of the products they produce. In addition to this, firms under monopolistic competition are free to exist as well as enter the market depending upon the profits they face.
Figure 4: Experimental simulation of oligopoly market (Source:Burinskas and Tvaronavičienė, 2022)
The main assumption of the oligopoly is that firms develop identical products and the prices of the products are kept constant. As argued by Zennaro et al. (2022), companies under oligopoly are mainly dependent on competitive strategies. In addition to this, the number of products produced by firms is kept constant. Thus, it can be argued that the firms set up a monopolistic market although there are a large number of firms present. It has been assumed that the sellers in an oligopoly are fewer and it is quite difficult to enter the oligopoly industry effectively (Long and Zhao, 2022). This is because of the high competitive advantage of the firms under oligopoly marketing structure. According to Burinskas and Tvaronavičienė (2022), the asymmetric model in oligopoly has been used to explain the competition between the firms effectively (Figure 1). The model explains the demand, supply as well as equilibrium in the prices of the firms effectively. Depending upon the preferences as well as demands of the customers, organisations under oligopoly market set up their prices.
3. Oligopolistic market and game theory
Game theory depicts the behaviour of people under strategic decisions of the firms. From the definition, it is quite evident that strategic decisions on the prices of products enable firms to attain high competitive advantage as well as profitability. According to Burinskas and Tvaronavičienė (2022), game theory enables firms to invest more in research and development when the competition of the firm is generally lower. It has been observed that in an oligopoly market, the firms are totally interdependent. Thus, the profitability of the firms is dependent totally upon the decisions of the production of products and its relevant pricing strategies. As argued by Zennaro et al. (2022), game theory has provided a conceptual framework so that organisations under oligopoly can act in the context of interdependence. It has been observed that in an oligopoly market, decisions are taken by the managers of one firm affect the decisions of the managers in other firms.
For example, a manager of one firm can decide a certain price of a product and that price may not be approved by the managers of other firms. Thus, it can be argued that the action of one manager can decide the reactions of another manager. Through game theory, it can be explained why the oligopolies markets face trouble in maintaining collusive arrangements for the generation of monopoly profits. For example, each firm has the probability to cheat the other firms to increase the market share. As argued by Rocha and Medeiros (2022), betraying one partner after confessing acts as a dominant strategy and it is reflected with the help of game theory. It can be argued that one firm can make the price competitive and dominate other firms successfully. This is the Nash equilibrium and it is reflected with the help of game theory.
Dominant strategy in game theory represents the “optimal move of one partner irrespective of the fact that how the other partners react”. As stated by Bartolomeo et al. (2022), Nash equilibrium is a “decision-making theorem”. Organisations use Nash equilibrium to attain competitive advantage without deviating from the initial strategies in decision-making. For example, the Coca-Cola Company in the UK uses a dominant strategy based on the diversification of markets as well as products (Coca-cola.co.uk, 2022). It has been noted that the company sells soft drinks and it is one of the renowned soft drink companies in the UK. However, the company has decided to diversify its sales by producing large aluminum cans and containers. As argued by Rocha and Medeiros (2022), diversification of products enhances the competitive advantage and allows organisations to increase their profitability effectively. Hence, it can be argued that dominant strategy helps increase as well as enhance the competitiveness of the firms to great extent.
Another example of an organisation that uses a dominant strategy is Adidas in the UK. Adidas mainly sells sports goods as well as sportswear for men and women in the UK (Adidas.co.uk, 2022). Thus, the company totally depends upon selling only one particular type of product such as sportswear in huge quantities. This is regarded as one of the important dominant strategies where the main focus is given to the quality of goods. Thus, it can be argued that a dominant strategy is selected to gain competitive advantage as well as customer preferences.
References
Journals
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Bansal, A., Gopalakrishnan, B., Jacob, J., and Srivastava, P. 2022. Impact of operational fragility on stock returns: Lessons from COVID-19 crisis. International Review of Finance, doi:http://dx.doi.org/10.1111/irfi.12374
Bartolomeo, G.D., Fedeli, S. andSantoni, M. 2022, “Public Provision of Goods and Services under Cost Uncertainty: The Government’s Bureaucratic Organization”, Mathematics, vol. 10, no. 1, pp. 77.
Burinskas, A., and Tvaronavičienė, M. 2022. The market structure simulation of heterogenous firms.Economies, 10(1), 9.doi:http://dx.doi.org/10.3390/economies10010009
Jecker, N. S. 2022. Global sharing of COVID-19 vaccines: A duty of justice, not charity. Developing World Bioethics, doi:http://dx.doi.org/10.1111/dewb.12342
Jovičić, M., Bošković, G.,B., Jovičić, N., Savković, M., Mačužić, I., Stefanović, M., and Klochkov, Y. 2022. Assessment of the fragility of the municipal waste sector in serbia using system dynamics modelling. Sustainability, 14(2), 862.doi:http://dx.doi.org/10.3390/su14020862
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Websites
Adidas.co.uk, 2022, About, Available at:https://www.adidas.co.uk/, [Accessed on: 8th February, 2022]
Coca-cola.co.uk, 2022, About, Available at:https://www.coca-cola.co.uk/, [Accessed on: 8th February, 2022]
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