![]() One of the best examples of a pure monopoly is the production of operating systems by Microsoft. ![]() A pure monopoly faces little competition because of high barriers to entry, such as high initial costs, or because the company has acquired significant market influence through network effects, such as Facebook, for instance. There is only one supplier who has significant market power and determines the price of its product. Auto manufacturers are a good example of an oligopoly, because the fixed costs of automobile manufacturing are very high, thus limiting the number of firms that can enter into the market.Ī pure monopoly has pricing power within the market. However, they must always consider the actions of the other firms in the market when changing prices, because they are certain to respond in a way to neutralize any changes, so that they can maintain their market share. ![]() A high barrier to entry limits the number of suppliers that can compete in the market, so the oligopolistic firms have considerable influence over the market price of their product. Although supply and demand influences all markets, prices and output by an oligopoly are also based on strategic decisions: the expected response of other members of the oligopoly to changes in price and output by any 1 member. For instance, suppliers of toothpaste may try to convince the public that their product makes teeth whiter or helps to prevent cavities or periodontal disease.Īn oligopoly is a market dominated by a few suppliers. Monopolistic competition is only possible, however, when the differentiation is significant or if the suppliers are able to convince consumers that they are significant by using advertising or other methods that would convince consumers of a product's superiority. Suppliers try to differentiate their product as being better, so that they can justify higher prices or to increase market share. Most consumer goods, such as health and beauty aids, fall into this category. However, the suppliers try to achieve some price advantages by differentiating their products from other similar products. Monopolistic competition is much like pure competition in that there are many suppliers and the barriers to entry are low. The best examples of a purely competitive market are agricultural products, such as corn, wheat, and soybeans. The primary reason why there are many firms is because there is a low barrier of entry into the business. Market prices are determined by consumer demand no supplier has any influence over the market price, and thus, the suppliers are price takers. In a purely competitive market, there are large numbers of firms producing a standardized product. Because market competition among the last 3 categories is limited, these market models imply imperfect competition. ![]() There are 4 basic market models: pure competition, monopolistic competition, oligopoly, and pure monopoly. However, an economic analysis of the different firms or industries within an economy is simplified by first segregating them into different models based on the amount of competition within the industry. Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure MonopolyĪ modern economy has many different types of industries.
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