The market structure concept is found in different industries of the countries across the globe. Various industries generally operate their activities under various market structures in Australia. This study mainly highlights on the monopoly and monopolistic competitive market of the Australian sector. In Australian current business environment, monopoly, monopolistic and oligopoly market has been found in several business sectors. These market forms has been highly vibrant in nature and thereby keeps on changing based on change in market competition. As these kinds of market structure hold distinct features, it facilitates the enterprise to choose operational strategies. Considering all sectors of Australia, this region is mainly dominated by oligopolistic form of market structure while monopoly and monopolistic sectors are less in number. These market forms are differentiated based on price mechanism as well as sellers power that derives both demand and supply of goods in these market. This essay also discusses about the concepts of these form of market structures. This study also intends to assess the reasons behind Australian government engage in the policy intervention for the monopoly market but cannot do this for monopolistic competitive market.
Monopoly signifies the state where the commodities and service do not have any kind of close substitute in the market. The main feature of this market structure is that there is single seller but huge number of buyers. However, the monopolist has full control over the price of products and does not consider other entities price and its supply of goods. As the monopoly firm is not influenced by other entities pricing of products, it is known as price makers. In addition to this, there are barriers in entry within this monopoly market and thus the monopoly entity might earn excess profit.
Figure 1: Monopoly market structure
Source: (Author’s creation)
The diagram shown above highlights the monopoly market structure where the MR (marginal revenue) curve lies under the AR (average revenue) curve. The monopolist tends to maximize profitability by setting the output where MR= MC. This occurs at the price Pm and output Qm. In comparison with the competitive market, monopolist reduces output and increases price of products. The shaded portion reflected in this diagram represents supernormal profit since the monopolist charge Pm amount of product price, which is situated at higher level than production cost level (Pc).
The Australian postal service follows the same features of the monopoly market structure. Since this market has been mainly concentrated with single player, postal service of this country contributes to around 90% of this industry’s revenue. This state- owned enterprise has earned total revenue of about $6807.2 million in the financial year 2017, which highlights that the total amount increased from the financial year 2013. Since the postal service of this country represents monopoly market structure, the Australian government is the only shareholder of this industry. The mission of this postal service sector is to communicate as well as connect business, people and communities across the globe via sending of mails or other letters. For this reason, this postal firm picks and delivers mails of weight less than about 30 kg. Moreover, the postal entity functions its business by three sections that involves- agency service along with retail merchandise, letters and other related service and parcels that covers both international and national markets. The pick-up procedure of this particular postal enterprise usually occurs at predetermined collection points, which includes- postal offices, postal agencies but do not take into account any kind of courier activities. The sector in Australia has been given authorization of the letter post. This postal service captures near around 5% of the total industry in Australia.
As per ACCC( Australian Competition and Consumer Commission), the postal service in this nation enjoys lawful monopoly over delivery of letters that weighs for less than around 250 gm and cost worth of $ 2.40 to send these letters to other places. Furthermore, this postal service industry does not let any private postal sector to demolish this industry’s monopolistic market structure. Due to this, no private postal enterprise in Australia can deliver parcels to the existing postal enterprise. The postal firm in this country has enhanced its prices in order to serve mail or letters through Pre Port services that offers discounts to the mail consumers who mainly sorts and barcode mail for lodgement. Apart from this, this country has planned to reform its Peak Pre Sort mail services to make this service highly attractive for the large number of mail customers. In addition to this, it encourages postal service to operate efficiently as well as flexibly use postal network. The growing gap between peak and off- peak postal service could further encourage effective use of postal network. Based on the recent data of the postal service, it can be seen that Pre Sort letter price increased over the last few years. Moreover, the Pre Sort regular letter price enhanced from 42.7% to 45.7% while off peak letter price enhanced from 41.6% to 41.9%. Recent evidences reflect that the postal service in this country has affected small size businesses by not allowing it to trade freely in the Australian market. Therefore, power of price control over this industry supports this postal enterprise to dominate this sector. Thus, the Australian postal service has been so active that no firm can get accessibility in this industry.
The intervention of the Australian government is needed within the monopoly market structure. The reason behind this is that if the government do not intervene in this market, the monopolist might charge excess price in order to maximize profitability. Therefore, this practice declines the total amount of consumer surplus within this industry but for using these resources in effective way, the government intervenes in this market. Moreover, the government of this nation implements this policy for deciding price relating to services of this sector. The intervention of the Australian government has led to impressive result since it effectively protected consumers interest who depends on this specific service. This circumstances is illustrated in the diagram given below-
Figure 2: Intervention of the Australian government in the monopoly market
Source: (Author’s creation)
The above figure represents government intervention within this postal service industry of Australia. Previously, implementation of policies by the Australian government, the price of the postal service charged by this industry is indicated by P1 level. The Australian government has lowered the postal service price from P1 to P2 level. Due to this, the total amount of profit that is attained by this postal industry reduces by particular level.
Monopolistic competition refers to the market structure that combines the features of both perfectly competitive and monopoly market. Large number of entities operate under monopolistic competitive market and stiff competition exists between these entities. With the huge competition between the entities, the firm incurring loss can exit this industry. Likewise, new entities also can enter this industry freely. Therefore, this market possess no barrier in entrance and exit. Another chief characteristic of this market structure is that the products produced by these entities have close substitutes but are slightly different from each other. Owing to this, the entities under this monopolistic competitive market structure compete with one another on the basis of few factors even if they can set the product price independently. Moreover, imperfect information relating to kinds, prices and quality of goods can be observed among the sellers within this market structure. In the long run, the firms operating under this market structure might earn normal profit as that of the firms operating under perfectly competitive market. On the other hand, the firms under this market structure can earn supernormal profit during the short-run. The diagrammatical portrayal of this market structure is same as that monopoly market.
Figure 3: Monopolistic competitive market in the short run
Source: ( As created by author)
The above figure represents monopolistic competitive firm that maximizes profitability at the level where MR becomes equal to MC. At this point, the corresponding equilibrium price is P1 and equilibrium output is Q1. Thus, the shaded area given in the diagram above reflects supernormal profit. In addition to this, this supernormal profit motivates new entities to enter this market in the long run. As a result, this declines the demand for already existing firms and thus leads to normal profitability. This is shown in the diagram given below-
In this context, the monopolistically competitive market in Australia can be seen in the coffee sector. One of the leading enterprise in the coffee sector of Australia named as Gloria Jean’s Coffee operates under the monopolistic competitive market structure. The enterprise had began its business in the year 1979 and mainly operates in more than 39 countries, which includes in near around 1000 coffee shops. Recent facts reflect that a retail group bought this coffee shop in the year 2014. As this coffee firm operates in this market structure, it has several rivalries such as – Coffee club, Hudson Coffee and Starbucks. Over the years, all these coffee entities have attained reputation for selling coffee at moderately lower price. In addition to this, this nation has several other industries that operates under this form of market structure. For example, the restaurant business in this nation also operates under this monopolistically competitive market structure. All the restaurants operating their business under this market structure of Australia mainly compete on homogenous items but these are slightly different in respect of tastes, quality and services. This creates strong competition among the restaurants and also help in determining market trends.
Another vital aspect of monopolistic market structures is market power. The market power mainly signifies ability of the enterprise to influence as well as control prices by analyzing the demand and supply of products and services in the market. Another example that operates under monopolistic competitive market is electrical entities within the energy distribution industry. The electrical organizations have large market power as well as manipulates product price in order to gain competitive advantage over its rivalries. However, the enterprises operating under this kind of market structure are known as price makers since they have the advantage to set or revise price of the product without even reducing its percentage of market share. As there are numerous firms operating within the energy distribution industry, each entity have huge effect on both creation and diffusion of the market power.
The Australian government might implement several policies within the monopolistic competitive industry for protecting the interests of customers. The government of this country might lead each enterprise under monopolistic competitive market structure through pricing capping and enhancing competition in order to exploit the resources effectively and efficiently. () opines that market efficiency can be observed in this market structure since this type of market follows few features of perfectly competitive market structure. Thus, intervention of Australian government is not necessary for the entities operating under this kind of market structure. Furthermore, there are some other reasons for which the government imposes policies intervention in the monopoly market but avoid in doing so in the monopolistic competitive market structure. Some of the main reasons are described as under-
Firstly, the Australian government can engage in intervening policies in this form of market in order to improve quality of products and service. The organizations operating under the monopoly market might have certain provision of particular service and incentives that offer high quality service. However, intervention of government helps to ensure that each firm meets minimum service standards.
Secondly, the Australian government intervention helps to promote huge competition within this market structure. Huge competition in this market structure motivates the existing businesses to adopt effective strategies in order to stay in this industry. Apart from this, the Australian government intervention of competition policy also helps to encourage consumer welfare. It also aids to design consumer protection in this monopoly market structure. This policy also attempts to promote efficiency and growth of the economy along with certain situation where the rivalries have social objectives. In case of monopolistic competitive market, the Australian government might not intervene policies for the enterprise operating within this market since it might create several problems such as creating barrier for new entrants, increase in price of commodities or service. Few economist also points out that there can be certain deregulation in monopolistic competitive market as the firms tends to keep product price low without changing its quality.
Thirdly, government policy intervention in the monopoly market helps to restrict excessive product price that is set by the monopolist. As a result, this might lead to allocative efficiency as well as decline consumer welfare.
Fourthly, some enterprises in Australia have natural monopoly because of economies of scale and entry of new enterprise. In this circumstance, government intervention helps the companies to prevent from abuse of this monopoly power.
Conclusion
From the above discussion, it can be concluded that the firms operating under monopoly and monopolistic competitive market in Australia adopts effective strategies for existing in the market for long run. Moreover, government intervention is mainly required for monopoly firm to reduce the price of goods and services and control other business practices. But in case of monopolistic competitive market structure, the government might not impose policies as increase in competition creates hurdles for new entrants to enter this market. the further issues that might be considered in this essay is to improve monopoly market in Australia by this nation’s government intervention.
References
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