Competition And Market Power Economics Essay

Competition And Market Power Economics EssayFor a big period of time, De Beers has been successfully raising consumer demand for diamonds. The society is storied for its noncompetitive policies during the go away century, when it used its leading position to control the outside(a) diamond securities industry. De Beers had a reduce of methods to ensure its control in the grocery place thus, it joined every(prenominal) independent manufacturers to its single channel monopoly, it pushed the manufacturers who refused to join the bargain out of the foodstuff by overfilling the market with diamonds, it bought and stored the diamonds of other producers in range to regulate the wrongs (De Beers Company).Pure monopoly destines the conditions in the market, when only one family produces and sells a product that has no substitutes. The market access is limited and the company has complete control over prices. Thus, in pure monopoly, the market is rule by a big enterprise-mo nopolist fully controlling the prices. Establishment of highly high prices is restrained by the risks of a fall or a lack of consumer demand. Monopolist assesses demand and lays the price at a direct that ensures the greatest return on investment (Larue, Gervais Pouliot, 2008).Monopolies atomic number 18 also universal utilities, the services of which argon used by any business. The existence of inwrought monopolies is justified by the fact that they best meet the public interest. In rural areas, such monopolies can be companies supplying agricultural machinery, chemical fertilizer, seed and breeder farms, businesses that provide repair services. The main features of monopoly are as follows (Larue, Gervais Pouliot, 2008) there is only one firm in the market, which affects the prices, adjusting the proposalThere are no identical products in the marketControlling the market of raw materials in the industry, the company-monopoly excludes the emergence of new producers.Thus, the market of pure monopoly is the market of one seller. Most frequently, these are the governmental organizations, with the state monopoly able to wreak various problems through pricing policiesTo set a price below the cost for socially important advantageouslys to maintain their standard of livingTo set a price covering the cost or providing a good incomeTo set a high price to reduce consumption.Returning to De Beers Company, for the travel decade it has been undergoing changes turning into a more(prenominal) reliable company. A number of factors led to the necessity for transformation in the De Beers model (De Beers Company).In 2004 the company was declared guilty according to the 1994 accusation that De Beers had merged with General electric car to control the price of industrial diamonds the company paid $10 zillion to the United States De departmentment of Justice.Contemporary diamond industry is noticeably differs from that of the last decade, as it is now a complicated a nd continuously developing geopolitical notion. Today, apart from De Beers, the most important players in the diamond business are the African producer countries (e.g., Botswana and Namibia), Rio Tinto, Lev Leviev, BHP Billiton, Alrosa, Harry Winston, etc (De Beers Company).3. Monopolistic CompetitionLuxury run across Industry Go to http//images.businessweek.com/ss/06/05/watches/source/1.htm (Retrieved May 17, 2010). This is an interesting article on luxury watches. Click on the slide show in the amphetamine right window (check out the prices). Are these three firms participating in a monopolistically private-enterprise(a) market? What characteristics of the good make the market monopolistically competitive? Explain.A recent study by the Luxury Institute has refractory the watches that are considered by the wealthy consumers to be the best out of the merry-go-round 17 ultra luxury watch producers Franck Muller, Vacheron Constantin and Audemars Piguet, Patek Philippe and Breguet, though Rolex and Cartier were most noted brands. Nowadays, even not so well-known watchmakers take an equal part in monopolistic controversy with the world leaders (Business Week, 2010).The market with monopolistic competition is characterized by the following features (Yomogida, 2010)The presence of multiple buyers and sellers (the market consists of a large number of independent companies and customers), the number of which doesnt exceed the one present in pure competition.Low barriers for the entry into the industry. This does not mean that it is easy to start a monopolistically competitive firm such difficulties as problems with registration, patents and licenses are still present.To survive in the market in the long run, monopolistically competitive firms need to produce diverse, diametricaliated products, which differ from that is offered by competing firms. Moreover, products whitethorn differ from one another by one or some(prenominal) properties (e.g. chemical composit ion of watches)Buyers and sellers are perfectly informed about market conditionsPredominantly non-price competition advertising of products is rattling important for the development.Companies of this type moderate a negative slope of the demand curve. In monopolistic competition, the doing is set at the level of addition maximization ( peripheral revenue equals marginal cost). However, when deciding on the leavement of prices for products, a monopolistic competitor acts care a monopolist the price for the goods is set at the highest possible level, i.e. at the level of the demand curve for products.Just as at the market of perfect competition, in monopolistic competition the firm relies on the revalue of the average wide costs, deciding whether to remain in the industry or leave the market. Thus, if the company continued to suffer losses, it means that the average total doing costs exceed the established price per unit, and the firm get out leave the market in the long ru n. It should be noted that, since the monopolistic competitor is dynamic in the decision-making, it cannot effectively allocate resources, which leads to inefficiency of such firms in the long run. It is practically impossible to have a positive profit at the market of monopolistic competition in the long term (Yomogida, 2010).4. OligopolyThe OPEC Oil Cartel Go to www.opec.org (Retrieved May 17, 2010). What are the organizations stated goals, which countries are members, and when was it founded? Is it normal for them to be successful in keeping oil prices high, or have they faced difficulties in keeping the stipulation united in the past?The Organization of the Petroleum Exporting Countries (OPEC) is an international intergovernmental organization (also called a cartel), established by oil-producing powers and including 12 countries Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador and Angola. The aim of OPEC is to array an d develop a common policy with regard to oil production among members of the organization, maintaining stable oil prices, providing a stable supply of oil to consumers, and utility from the investments in the oil industry (OPEC).OPEC members control about 2/3 of world oil reserves. Their share in the world oil makes 40%, or nearly the half of the world oil exports. At different periods of its history, the Organization of Petroleum Exporting Countries controlled from 25% to 60% of oil production in industrial countries (Hansen Lindholt, 2008).At the same time, the cartel catch up withs a very unstable structure, based on collusion in order to establish a monopoly price in the market, which can be unsatisfactory for some members of the cartel this finally leads to the violation of the cartel agreement.At first glance, the relation of the cartel and monopoly is obvious. But the cartel very rarely (in contrast to the monopoly), controls the sinless market, because the policy has to deal with non-cartelized enterprises. In addition, the cartel members have quite a powerful temptation to cheat their partners, reducing prices or actively promoting their product, which creates the conditions for the pay off of the market (Hansen Lindholt, 2008).Failure to fully and consistently use the cartel for the interaction of oligopolistic firms is forcing them to conduct secret economic policy in price changes and in the delineation of the spheres of influence. Such cooperation may manifest itself in the form of price rigidity or leadership in price formation, and through fussy organizations such as patent pools.The rigidity of prices is the oligopolistic practice, when, even with changes in costs or demand, an organization is not inclined to change prices, believing that if it has to vacate the price, others will follow, which will lead to loss of market share. In this way, the cartel stays away from changing prices due to the fear to unleash the warfare of prices. L eadership in prices means the practice, when the formation of prices for the product is focused on the prices set by the leader often dominant in this industry. This demonstrates the miscellany of implicit collusion, although its presence is usually not proven (Bckem, 2004).Patent pools represent an agreement on specialization and cooperation of production, and the consortium the union of firms to conduct common scientific research and joint construction of large investment projects. twain of these organizations perform cartel functions and are the basis for the organization of conspiracy to cleave the market.Thus, the oligopoly is characterized by three features there are two or more competing firms in the industry, so that the industry is not monopolized (OPEC and Russia relation) demand curve has a falling character, so the industry does not have rules of free competition at least one large organization operates in the industry, any action of which causes a reaction of c ompetitors (OPEC oligopolistic practices), so that there is no monopolistic competition (Bckem, 2004).