Competition And Market Power Economics Essay

For a long period of clip, De Beers has been successfully raising consumer demand for diamonds. The company is celebrated for its monopolistic policies during the last century, when it used its prima place to command the international diamond market. De Beers had a figure of methods to guarantee its control in the market: therefore, it joined some independent makers to its individual channel monopoly, it pushed the makers who refused to fall in the trust out of the market by overfilling the market with diamonds, it bought and stored the diamonds of other manufacturers in order to modulate the monetary values ( De Beers Company ) .

Pure monopoly means the conditions in the market, when merely one company produces and sells a merchandise that has no replacements. The market entree is limited and the company has complete control over monetary values. Therefore, in pure monopoly, the market is dominated by a large enterprise-monopolist to the full commanding the monetary values. Constitution of highly high monetary values is restrained by the hazards of a autumn or a deficiency of consumer demand. Monopolist buttockss demand and sets the monetary value at a degree that ensures the greatest return on investing ( Larue, Gervais & A ; Pouliot, 2008 ) .

Monopolies are besides public public-service corporations, the services of which are used by any concern. The being of natural monopolies is justified by the fact that they best run into the public involvement. In rural countries, such monopolies can be companies providing agricultural machinery, chemical fertiliser, seed and breeder farms, concerns that provide fix services. The chief characteristics of monopoly are as follows ( Larue, Gervais & A ; Pouliot, 2008 ) :

There is merely one house in the market, which affects the monetary values, seting the proposal ;

There are no indistinguishable merchandises in the market ;

Controling the market of natural stuffs in the industry, the company-monopoly excludes the outgrowth of new manufacturers.

Therefore, the market of pure monopoly is the market of one marketer. Most often, these are the governmental organisations, with the province monopoly able to work out assorted jobs through pricing policies:

To put a monetary value below the cost for socially of import goods to keep their criterion of life ;

To put a monetary value covering the costs or supplying a good income ;

To put a high monetary value to cut down ingestion.

Returning to De Beers Company, for the last decennary it has been undergoing alterations turning into a more dependable company. A figure of factors led to the necessity for transmutation in the De Beers theoretical account ( De Beers Company ) .

In 2004 the company was declared guilty harmonizing to the 1994 accusal that De Beers had merged with General Electric to command the monetary value of industrial diamonds ; the company paid $ 10 million to the United States Department of Justice.

Contemporary diamond industry is perceptibly differs from that of the last decennary, as it is now a complicated and continuously developing geopolitical impression. Today, apart from De Beers, the most of import participants in the diamond concern are the African manufacturer states ( e.g. , Botswana and Namibia ) , Rio Tinto, Lev Leviev, BHP Billiton, Alrosa, Harry Winston, etc ( De Beers Company ) .

3. Monopolistic Competition

Luxury Watch Industry: Travel to http: //images.businessweek.com/ss/06/05/watches/source/1.htm ( Retrieved May 17, 2010 ) . This is an interesting article on luxury tickers. Click on the slide show in the upper right window ( look into out the monetary values! ) . Are these three houses take parting in a monopolistically competitory market? What features of the good do the market monopolistically competitory? Explain.

A recent survey by the Luxury Institute has determined the tickers that are considered by the affluent consumers to be the best out of the top 17 extremist luxury ticker manufacturers: Franck Muller, Vacheron Constantin and Audemars Piguet, Patek Philippe and Breguet, though Rolex and Cartier were most celebrated trade names. Presents, even non so well-known horologists take an equal portion in monopolistic competition with the universe leaders ( Business Week, 2010 ) .

The market with monopolistic competition is characterized by the undermentioned characteristics ( Yomogida, 2010 ) :

The presence of multiple purchasers and Sellerss ( the market consists of a big figure of independent companies and clients ) , the figure of which doesnaa‚¬a„?t exceed the one nowadays in pure competition.

Low barriers for the entry into the industry. This does non intend that it is easy to get down a monopolistically competitory house ; such troubles as jobs with enrollment, patents and licences are still present.

To last in the market in the long tally, monopolistically competitory houses need to bring forth diverse, differentiated merchandises, which differ from that is offered by viing houses. Furthermore, merchandises may differ from one another by one or several belongingss ( e.g. chemical composing of tickers ) ;

Buyers and Sellerss are absolutely informed about market conditions ;

Predominantly non-price competition ; advertisement of merchandises is really of import for the development.

Companies of this type have a negative incline of the demand curve. In monopolistic competition, the end product is set at the degree of net income maximization ( fringy gross peers fringy cost ) . However, when make up one’s minding on the constitution of monetary values for merchandises, a monopolistic rival Acts of the Apostless like a monopolizer: the monetary value for the goods is set at the highest possible degree, i.e. at the degree of the demand curve for merchandises.

Merely every bit at the market of perfect competition, in monopolistic competition the house relies on the value of the mean entire costs, make up one’s minding whether to stay in the industry or go forth the market. Therefore, if the company continued to endure losingss, it means that the mean entire production costs exceed the constituted monetary value per unit, and the house will go forth the market in the long tally. It should be noted that, since the monopolistic rival is dynamic in the decision-making, it can non efficaciously allocate resources, which leads to inefficiency of such houses in the long tally. It is practically impossible to hold a positive net income at the market of monopolistic competition in the long term ( Yomogida, 2010 ) .

4. Oligopoly

The OPEC Oil Cartel Go to www.opec.org ( Retrieved May 17, 2010 ) . What are the organisation ‘s stated ends, which states are members, and when was it founded? Is it normal for them to be successful in maintaining oil monetary values high, or have they faced troubles in maintaining the trust united in the yesteryear?

The Organization of the Petroleum Exporting Countries ( OPEC ) is an international intergovernmental organisation ( besides called a trust ) , established by oil-producing powers and including 12 states: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador and Angola. The purpose of OPEC is to organize and develop a common policy with respect to oil production among members of the organisation, keeping stable oil monetary values, supplying a stable supply of oil to consumers, and benefit from the investings in the oil industry ( OPEC ) .

OPEC members control about 2/3 of universe oil militias. Their portion in the universe oil makes 40 % , or about the half of the universe oil exports. At different periods of its history, the Organization of Petroleum Exporting Countries controlled from 25 % to 60 % of oil production in industrial states ( Hansen & A ; Lindholt, 2008 ) .

At the same clip, the trust represents a really unstable construction, based on collusion in order to set up a monopoly monetary value in the market, which can be unsatisfactory for some members of the trust ; this eventually leads to the misdemeanor of the trust understanding.

At first glimpse, the similarity of the trust and monopoly is obvious. But the trust really seldom ( in contrast to the monopoly ) , controls the full market, because the policy has to cover with non-cartelized endeavors. In add-on, the trust members have rather a powerful enticement to rip off their spouses, cut downing monetary values or actively advancing their merchandise, which creates the conditions for the gaining control of the market ( Hansen & A ; Lindholt, 2008 ) .

Failure to to the full and systematically use the trust for the interaction of oligopolistic houses is coercing them to carry on secret economic policy in monetary value alterations and in the word picture of the domains of influence. Such cooperation may attest itself in the signifier of monetary value rigidness or leading in monetary value formation, and through particular organisations such as patent pools.

The rigidness of monetary values is the oligopolistic pattern, when, even with alterations in costs or demand, an organisation is non inclined to alter monetary values, believing that if it has to raise the monetary value, others will follow, which will take to loss of market portion. In this manner, the trust stays off from altering monetary values due to the fright to unleash “ the war of monetary values. ” Leadership in monetary values means the pattern, when the formation of monetary values for the merchandise is focused on the monetary values set by the leader – frequently dominant in this industry. This demonstrates the sort of inexplicit collusion, although its presence is normally non proved ( BAA¶ckem, 2004 ) .

Patent pools represent an understanding on specialisation and cooperation of production, and the pool – the brotherhood of houses to carry on joint scientific research and joint building of big investing undertakings. Both of these organisations perform trust maps and are the footing for the organisation of confederacy to split the market.

Therefore, the oligopoly is characterized by three characteristics: – there are two or more competing houses in the industry, so that the industry is non monopolized ( OPEC and Russia relation ) ; – demand curve has a falling character, so the industry does non hold regulations of free competition ; – at least one big organisation operates in the industry, any action of which causes a reaction of rivals ( OPEC oligopolistic patterns ) , so that there is no monopolistic competition ( BAA¶ckem, 2004 ) .