Identify The Type Of Competition: Pure Competition Or Monopo

Identify The Type Of Competition Pure Competition Monopolistic O

Identify the type of competition (pure competition, monopolistic, oligopolistic, pure monopoly) that is exemplified in each of the following situations: (20 marks, 5 marks each)

Situation | Competition type

--- | ---

1. The US postal service is provided only by the government. |

2. In Vina del Mar, Chile, a large number of shops specialize in selling the same quality of seafood products along the beach frequented by tourists. No individual shop dares charge more than the going price without fearing loss of business to other shops. |

3. Many sellers trade over a range of prices in the automobile industry by differentiating their offers to many buyers. |

4. The movie industry in a country is controlled by six large studios that receive 90 percent of the annual revenues from movies. |

Classify each of the following into fixed or variable costs. (50 marks, 5 marks each)

| Cost Item | Fixed costs | Variable costs |

| --- | --- | --- |

| Interest | | |

| Rent | | |

| Delivery | | |

| Wages of part-time staff | | |

| Raw materials | | |

| Executive salaries | | |

| Insurance | | |

| Commission on sales | | |

| Package | | |

| Advertising | | |

Explain the following pricing strategies and provide an example of each. (30 marks)

- Everyday low pricing:

- High-low pricing:

- Value-added pricing:

Paper For Above instruction

The evaluation of market competition structures is essential to understanding how firms operate, set prices, and influence consumer choice. The four primary types of market competition—pure competition, monopolistic competition, oligopoly, and monopoly—each present distinct characteristics, advantages, and challenges. This paper discusses the nature of these competition types as exemplified by real-world scenarios, explores their classification in specific cost contexts, and examines different pricing strategies employed by firms in various industries.

.types of Market Competition

1. Monopoly: The US Postal Service

The United States Postal Service (USPS) operates as a monopolistic entity because it is the sole provider of standard mail services in the country. This situation exemplifies pure monopoly, where a single firm dominates the entire market, often due to government regulation or exclusive rights. Monopoly results in the absence of direct competition, enabling the monopolist to set prices without concern for rival firms. Government ownership of USPS ensures service provision in all regions, including remote areas, and prevents duplication of services. However, it also raises issues related to inefficiency and lack of innovation compared to competitive markets.

2. Perfect Competition: Seafood Shops in Vina del Mar

This scenario illustrates perfect or pure competition, characterized by numerous sellers offering identical products, low entry barriers, and price-taking behavior. Shops selling seafood along the beach in Vina del Mar compete by offering the same quality of seafood at similar prices. Each shop's ability to charge above the market price is limited because consumers will generally buy from the seller offering the lowest price, and no single shop has enough market power to influence prices. The intense competition sustains prices at or near the equilibrium level, demonstrating the features of perfect competition.

3. Monopolistic Competition: Automobile Industry

The automobile sector exhibits monopolistic competition, where many firms sell differentiated products at various prices. Each automaker offers unique features, branding, and configurations, distinguishing their vehicles from competitors while still competing within a broad market. Firms have some control over pricing due to product differentiation, but they remain constrained by the presence of substitute options. This structure encourages product innovation and advertising, which foster customer loyalty and competition on factors beyond price alone.

4. Oligopoly: Film Industry

The film industry scenario, dominated by six large studios controlling 90% of market revenues, exemplifies oligopoly. An oligopoly consists of a few large firms that dominate the market, each aware of the others' actions, leading to strategic decision-making. Barriers to entry are high due to considerable capital requirements and established brand dominance. These studios influence film pricing, production quantity, and distribution strategies while often engaging in non-price competition such as marketing and exclusive content deals.

Classification of Costs: Fixed and Variable

Understanding fixed and variable costs is crucial for managerial decision-making and pricing strategy. Fixed costs remain constant regardless of production volume, while variable costs fluctuate with output levels.

• Interest: Fixed cost — The interest paid on loans remains constant over time, irrespective of production volume.
• Rent: Fixed cost — Rent payments are usually fixed in nature, not affected by production levels.
• Delivery: Variable cost — Delivery expenses depend on the volume of goods shipped; more deliveries incur higher costs.
• Wages of part-time staff: Variable cost — Wages vary depending on hours worked or number of hours assigned.
• Raw materials: Variable cost — Raw materials are consumed proportionally to production output.
• Executive salaries: Fixed cost — Salaries for senior management tend to be fixed, regardless of production levels.
• Insurance: Fixed cost — Insurance premiums are generally fixed periodic payments.
• Commission on sales: Variable cost — Commissions depend directly on sales volume.
• Package: Variable cost — Packaging costs vary with the number of units produced or shipped.
• Advertising: Fixed or variable — Advertising expenses can be fixed (e.g., ongoing campaigns) or variable depending on marketing efforts.

Pricing Strategies and their Examples

1. Everyday Low Pricing (EDLP)

Everyday Low Pricing involves setting consistent, low prices for products without frequent discounts or promotions. This strategy aims to attract price-sensitive consumers by offering stable prices, reducing the cost and effort of price comparisons. Retailers such as Walmart effectively use EDLP to maintain customer loyalty and steady sales volumes. For example, Walmart consistently prices its household essentials at low, stable rates, avoiding sales and discounts to maintain simplicity and trust.

2. High-Low Pricing

High-low pricing combines high regular prices with periodic discounts and promotions to stimulate sales. It appeals to consumers who seek bargains while allowing firms to maximize revenues through premium pricing during non-discount periods. Retailers like department stores often employ this strategy. An example is Macy’s, which maintains higher regular prices but offers frequent sales events, attracting different customer segments.

3. Value-Added Pricing

Value-added pricing involves charging a premium based on additional features or services provided to enhance the product’s value. This strategy is common in luxury goods, electronics, and services, where differentiation justifies higher prices. Apple Inc. employs value-added pricing by offering sleek designs, innovative features, and excellent customer service, allowing it to command higher prices than competitors.

Conclusion

Understanding market structures, costs, and pricing strategies provides vital insights into how firms operate within the economy. Market competition varies significantly from monopolistic to perfect competition, influencing pricing, innovation, and consumer choice. Recognizing these differences can aid managers and policymakers in making informed decisions to promote efficiency, fairness, and growth within markets.

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