Economics 2 Marks Each

• Under oligopoly the number of setters or producers is very few so they strive to gather information about other setters or producers. Setters compete on the basis of price or product, they decide price or variety based on the actions of their competitors. This is called interdependence In oligopoly market there are very few sellers and producers. So, the sellers or producers can easily gain important information about other sellers or producers.
• The sellers and producers then pay special attention on the quality and type of the product to compete with other similar products and attract consumers. For example, producers and sellers of television, car, etc. follow similar practices of discount, features, etc.
• The firms decide price, quality or type of its product, based on the behaviour of the competitors and so they are interdependent.

• The policy of a monopolist to charge different prices from customers of different categories/types in order to increase his demand is called price discrimination.
• Due to absence of competition, the seller can charge different prices on the same product, depending on its use or form.
• Thus, the seller adopts the concept of price discrimination and earns higher profit. For example, doctor, lawyer, etc. can charge different fees for similar problems.

• A market in which both monopoly and perfect competition co-exists partially is called monopolistic competition.
• In reality, market is neither perfectly competitive nor purely based on monopoly. A mixed form of both exists in the market. In reality, mainly monopolistic types of market are commonly found.

Various definitions:

1. According to Prof. Chamberlin “Perfect competition and perfect monopoly co-exist in a market, known as Monopolistic Market.”
2. According to Mrs. Robinson: “If each firm establishes monopoly and also competes at the same time, the market is called Imperfect Competition.”

• A firm is an independent unit of production, whereas an industry is the collection of the firms producing same products.
• However in monopoly, the producer and the seller are same. So, the concept of collection of firms does not exist and single firm behaves as a whole industry.

• There are numerous buyers and sellers in perfect competition.
• The expenses of transportation are so nominal as compared to the total expense that they are not counted.
• Thus zero transportation expense is an important characteristic of the perfect competition.

• Pure monopoly , like perfect competition, is only the theoretical concept. According to chamberlin, "Even if the procedure keeps any price, if he can get all the incomes of all the consumers deduct their saving, pure monopoly arise". In fact, when we use the word monopoly, it is impure or limited monopoly. Generally, in the market where there are innumerable buyers and only one producer or seller, no close best substitutes are available and entry of new firms are prohibited, such a market is called a monopoly.

• In Perfect competition and Monopolistic competition, entry-exit is free so the firm gets normal profit in long run. While in monopoly only one firm is in the industry so in long run also the firm sustains abnormal profit.

• In perfect competition, as firms sell the homogeneous goods, selling cost is not necessary. In monopoly, there is only one firm and no one makes close substitutes of its product, so there is no need for incurring selling cost. In monopolistic competition, there is a large number of firms making close substitutes so selling cost is inevitable. While in oligopoly, there is more interdependence of firms, so selling cost is the most important.

• In perfect, Competition, entry - exit of firms are free. In monopoly, the entry of firm is prohibited. In monopolistic competition, entry- exit of firms are free. While in oligopoly, the entry of firms is based upon the types of oligopoly.

• In perfect competition, firms sell homogeneous goods. In monopoly, there is no close substitute goods. In monopolistic competition, firms sell close substitute goods. While in oligopoly, the firms sell homogeneous or close substitute goods.

• In perfect competition , numbers of buyers and sellers are innumerable. In monopoly, producer or seller is only one and buyers are innumerable. In monopolistic, there are a large number of sellers and buyers are innumerable. While in oligopoly there are few sellers and buyers are innumerable.

• In oligopoly, there are few firms. The firms produce homogeneous or close substitute goods. and their independence is intense. These firms quickly imitate the reduction in price of other firms. Due to this price reduction. increase in demand is not possible. If a firm increases price. other firms may not follow it. Therefore, the firm has to lose a sizeable market. In this circumstances, the price reduction competition reaches to a lower level, from that level there can not possible to reduce the price more. At a certain level of price the firm becomes rigid and that point the demand curve kink rises.

• It is not necessary to have a definite place for a market. A market is a process of exchange in which, there are two parties buyers and sellers. They comes in contact with each other directly or indirectly and exchange goods or services. Because of this process of exchange. there is tendency of equal price for homogeneous commodities in different parts of a market.

• Monopoly is useful as a means of welfare in certain public services or commodities are provided to the people by the government for welfare purpose rather than for profit. It is desirable to monopolize the production of arms for defense and also for its confidentiality. When there is price discrimination, monopoly becomes useful. From the view point of welfare. It is desirable that the Railway charges more fees from rich passengers and lower fees from poor passengers.

• In oligopoly :
• There are few sellers and innumerable buyers.
• The producer sells homogeneous or close substitutes goods.
• Entry of the firm is dependent on the type of monopoly.
• Selling cost of a product is inevitable.
• Due to mutual interdependence of firms, the demand curve of firm is kinked (Kinky).

• In English, the word oligopoly is made of two roots 'oligo' and 'pollien'. Oligo means few and pollien means to sell. In short, oligopoly means the monopoly of the few sellers or producers. becomes means 'when the total supply of industry is in the hand of the few firms, each firms m monopolistic and these firms can be called oligopoly. According a to Prof. Mayers : "Oligopoly is such a condition in which there is a small number of sellers and so each seller individually places the supply in the market and he is conscious about its effect on the price".

• The commodities or services whose sale is confined to a region or a state is called regional market. e.g. the market for Guajarati Tele-film.

• In monopolistic competition :
• There is a large number of firms and infinite (unlimited) Buyers.
• The product of each firm is differentiated from the other products.
• Firms are producing close substitutes products.
• Selling cost of a product is inevitable.
• Limited control of a firm on price.
• Free entry for firms in a group.
• The firms obtains normal profit in the long run.

• The concept of imperfect competition is wide. It is the situation that prevails between two extremes of perfect competition and monopoly. This concept was presented by Mrs. John Robinson. The concept of monopolistic competition is narrow. Monopolistic competition is one of the various conditions prevalent in imperfect competition. This concept has been presented by Prof. Chamberlin.

• From the view point of competition prevailing among firms, there are two markets like perfect competition and imperfect competition. There are subdivisions under imperfect competition like monopoly, monopolistic competition, oligopoly etc.

• When commodities are sold in bulk or at a large scale, it is called a wholesale market. In such a market , there is usually the merchants purchase goods from producers and sale to retailer according to their needs in small quantity. The market in which the traders sell and the customers purchase goods in retail or small quantity, it is called retail market. e.g. provision store.

• Classification of a market based upon geographical or place area is not rigid. It many changed when time and circumstances are changed. Recently there is revaluation in transportation and communication sector and the use of modern storage is increasing, the classification gap line is erased. e.g. In the past the milk market was local or regional it becomes national in present.

• A commodity whose production, purchase and sale are confined to a nation is called a national market. This market is extended to various states of a nation. e.g. saree or dhoti market of India.

• From geographical view point, there are four types of a market :
• Local market
• Regional market
• National market
• International market.

• For a market :
• There should be buyers and sellers.
• A commodity or service must De available.
• The place is not necessary for a market, but it is necessary for the buyers aria sellers to be in touch with each other directly or indirectly.
• There should he interaction of exchange between them.
• Both the parties should agree to a price.
• It is necessary to have a perfect information of the market.

• A market is a process or arrangement and it has nothing to do with any place. It is connecter with the process of exchange between buyers and sellers who are in contact with each other directly or indirectly.

• The concept of pure competition is included in the perfect competition.
• Although there are following differences.
• For pure competition, three conditions must be fulfilled.

• There should be a large number of buyers and sellers.
• All the commodities sold in the market are homogeneous.
• Free entry - exit of firms in an industry.
• While in perfect competition, besides the above mentioned conditions other conditions are also to be fulfilled like
• Perfect information of the market.
• The factors of production completely dynamic and mobile.
• Zero transportation cost.

• The concept of pure competition is more realistic than that of perfect competition.

• A commodity or a service whose sale is confined to an area in which it is produce is called a local market. e.g. the market for bricks.

• A market is an arrangement where buyers and sellers come in contact with each other directly or indirectly and undertake the process of exchange of a commodity. In result of that, different parts of market, there is a tendency of equal price for homogeneous commodities.