The concept of market structure can be found in industrial sectors of many countries across the world. In Australia, different industries operate their activities under different market structures among which this essay focuses on monopoly and monopolistically competitive market (Tucker & Baden-Fuller, 2018). These different types of market structures possess distinct characteristics, which in turn help organisations to select their respective operational strategies and management. Considering all industries of Australia, it can be said that the continent is chiefly dominated by oligopolistic type of market structure while comparatively lower number of monopoly as well as monopolistic industries can be seen over there (De Vries, Pennings, Block & Fisch, 2017). Based on price mechanism and power of seller that can lead the demand and supply, the Australian market can be differentiated.
This essay has intended to analyse monopoly as well as monopolistically competitive markets of Australia by taking under consideration various policy interventions of the government. For this, at first the essay will discuss about basic concepts of these two market structures briefly. The chief objective of this essay is to analyse operations of different Australian firms and understand about the fact that whether government may intervene policies on monopolies but cannot do the same in monopolistically competitive market.
Monopoly represents a situation where a product or service does not have any substitute within the market. The chief characteristic of this market is that it has only one seller but large number of purchasers (Spierdijk & Zaouras, 2017). Hence, the monopolist has the power to decide and set different prices for a product without considering prices of other firms and their supply. Moreover, other firms cannot enter into this market and consequently the monopoly firm can freely earn excess profit, which is not possible in competitive market. As the number of seller is one, the firm is considered as the industry.
Source: (created by author)
The above figure has represented a monopoly market where marginal revenue (MR) curve lies below the average revenue (AR) curve or demand curve. The shaded area of this figure represents excess profit as the monopolist charges P amount of prices. This price level is situated at comparatively higher level than the level of production cost (C).
The postal service of Australia follows almost all characteristics of a monopoly market and these will be described further with brief explanation. This state-owned business has earned revenue worth $ 6807.2 million in 2017 and this amount has been increased over the year since 2013 (Unterberger et al., 2018). As the service represents a monopoly market structure, the only shareholder of this industry is the Australian Government. Thus, it is estimated that presently the sector contributes 90% of the total revenue of this sector in Australia (Auspost.com.au., 2018). The basic objective of this service is to connect people, communities and businesses across the country as well as world through sending mails and other parcels. As a result, the entity picks up and delivers documents containing weight less than 30 kg. The Australia postal service operates its business within three segments, which are, letters and related services, retail merchandise along with services of agency and parcels as well as logistics that covers entire national and international markets.
Source: (Auspost.com.au. , 2018)
The pickup process of this specified postal entity happens at different collection points, which are predetermined. Moreover, the service includes postal offices along with postal agencies but does not consider any courier activities. This service industry captures only 5% of the total sector of Australia. Based on the Australian Competition and Consumer Commission (ACCC), it can be said that the entity enjoys statutory monopoly for delivering letters containing weights less than 250 gm and cost worth $ 2.40 for sending to other places (Grimmer, 2018). Moreover, the service sector does not allow any other postal services owned by any private industry to demolish the monopolistic structure of the industry. As a result, no private organisation within this country can deliver parcels to the existing postal offices.
The postal entity of Australia has increased its prices for serving mail letters through considering Pre Sort services, which provides discounts to mil consumers. Those mail consumers sort and barcode mail for lodgement. Moreover, the country has decided to change its Peak Pre Sort mail for making this service comparatively more attractive for its large number of customers. This further motivates the service to work efficiently and utilise postal network flexibly. The increasing gap between peak as well as off-peak services under the Australian postal industry helps the sector efficiently utilise it postal network. According to recent data of postal service, it is observed that the price related to small Pre Sort service for regular letter has increased from 42.7% to 45.75 while the price for Off Peak Letter has increased from 41.6% to 41.9% (Lachapelle, Burke, Brotherton & Leung, 2018). According to a daily newspaper article of Australia, it can be stated that the service of this specified industry has adversely affected small Australian businesses by not allowing them to freely trade in the domestic market.
The government intervention within a monopoly market is required. This is because without any control of the government, the monopolist can charge excess prices for earning higher amount of profit (Mazzucato & Penna, 2016). However, this practice reduces the amount of consumer surplus within the sector while to utilise all resources completely and efficiently, government intervention is also required. The Australian government imposes its policy to decide price regarding products and services of this industry. This service, provided by the Australian government has represented an impressive outcome, as it has successfully protected the interest of customers, who completely depend on this service. This situation can be described with the help of following diagram.
Source: (created by author)
The above diagram has represented government intervention within the postal sector of Australia. Before any governmental policy, the sector charges its postal price at P1 level. However, the government has reduced this price from P1 to P2. As a result, the amount of profit, earned by the postal industry, decreases by certain amount.
Monopolistic competitive market contains the characteristics of both perfectly competitive market and monopoly market. The number of buyers and sellers within a monopolistically competitive market is large and consequently this type of market structure does not possess any restriction for enter or exit. These criteria are similar with that of a perfectly competitive market (Fang & Wu, 2018). However, unlike the perfectly competitive market, this monopolistic competitive market sells products and services that have close substitutes but not identical. As a result, firms under this market compete with each other based on certain factors though they can set price independently. Moreover, imperfect information regarding quality, types and prices of products can also be seen among sellers over the market. During short-run, firms within this market can earn excess profit while in long run, the market only can earn normal profit like a perfectly competitive firm (Parenti, Sidorov, Thisse & Zhelobodko, 2017). Hence, the diagrammatical representation of this market is similar to that of a monopolist market.
In the context of Australia, this monopolistic competitive market can be observed in coffee industry. For instance, Gloria Jean’s Coffee takes the leading position within the coffee sector of this country. The company has started its business in 1979 expanded the business over 39 countries including 1000 shops of coffee. In addition to this, a retail food group purchased this coffee firm in 2014 (Janissen & Huynh, 2018). However, the firm has some strong competitors like Starbucks, Coffee Club and Hudson Coffee. In Australia, these firms have become well known for selling coffee at comparatively lower prices.
The country has other sectors that follow monopolistic competitive. For instance, the restaurant sector of Australia also follows this type of market structure (Nong & Siriwardana, 2018). All restaurants within this country provide almost same types of dishes though tastes, prices, qualities and services of every restaurant varies and this in turn form a strong competition among them.
Market power is considered as one of the important aspects of the monopolistic market structures. This market power represents the ability of an entity to control and manipulate prices through analysing the market demand and supply of goods and services (Sun, Jing, Zhao & He, 2017). According to the operational strategy of electrical entities, it can be said that the sector of energy distribution follows monopolistic competitive market and each of these entities posses huge market power for influencing the market price to earn higher amount of profit (Aulich & Wettenhall, 2017).
The government of Australia may impose various policies within these sectors of monopolistic competitive to protect interests of consumers. Through stimulating competition and capping prices, the government can lead each company under this market structure to exploit resources fully and efficiently (Pigou, 2017). However, as this form of market follows some criteria of a perfectly competitive one, market efficiency can be seen over here. As each firm is selling similar products to same customers, they have huge competition among each other. As a result, it can be said that within a monopolistic competitive market, policy intervention is not essential for operating firms efficiently.
In this context, some chief reasons for the importance of government intervention can be discussed. Firstly, through implanting policies, the government tries to improve the product quality. The government can provide incentives to some specific entities to provide products with higher quality. Secondly, the government can restrict prices of some essential commodities to protect interests of consumers (Bös, 2015). Without any government regulated policies, these firms under monopoly and monopolistic competitive market can charge excess profit and this further can reduce the amount of consumer surplus. Thirdly, these policies can promote huge competition among companies within an industry. Due to higher competition, these firms may tend to produce products with lower costs but with higher amount of qualities. In Australia, this competition policy has sharply protected customer interests.
Hence, after the entire discussion, a brief conclusion can be drawn. The essay has discussed about the monopoly and monopolistic competitive market structures and their impacts on Australia’s business industries. The oligopolistic form of market regulates most of the Australian market. However, some sectors follow monopoly as well as monopolistic competitive market as well. For instance, the postal service of Australia follows monopoly nature, as the number of firm is one. Without this state-owned entity, other private companies cannot deliver mails and letters and the entire system is regulated by government regulation. However, a monopoly firm can negatively utilise its efficiency due to lack of competition. In addition to this, the market can also adversely affect consumer surplus through charging higher prices, as the firm enjoys market power to set prices for the product or service freely. Hence, it this situation, the government implements regulations and policies to control the business practices of these firms. On the contrary, monopolistic competitive market follows characteristics of both monopoly and perfectly competitive market. Firms under this market experiences strong competition, as all entities sell almost similar products to same customers. The coffee industry along with restaurant sectors and electricity industry follow these type of market structure.
References:
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