Australia Market Structures Monopoly and Monopolistic Competition

Question: Discuss about theAustralias Market Structuresfor Monopoly and Monopolistic Competition. Answer: Introduction Every industry in Australia has a prevailing market structure under which it operates. Typically, market structure refers to the specific social organization that exists between the buyers and sellers of a particular market. Various features characterize a market structure. This includes the degree of buyer concentration, the degree of seller concentration, the barriers to entry and the level of product differentiation. All these factors determine the type of market structure in a particular industry. There are various types of market structures Australia. The most common structures include perfect competition, oligopoly, monopoly and monopolistic competition. The number of firms in a particular market affects the output size and price decisions and determines the degree of competitions in that market. Similarly, the extent of product differentiation affects the extent to which single firms can raise or reduce their prices without affecting their sales. Furthermore, the cost of information determines the opportunities available for pricing policies and quality distinctions within businesses in the market (Krugman Obstenfeld 2006). Additionally, the barriers to entry to a particular market determine whether or not firms will reap economic profits in the long run. For this reason, it is crucial for every firm to understand the market structure of the industry in which it operates. Monopolists in Australia Amonopolistic market structure is one in which a single seller dominates the entire market. As such, there is only one producer of that particular product in the market. Therefore, the goods provided the monopolist has no close substitutes. By and large, this market structure is characterized by high barriers to entry. The most common barriers include technological barriers and high capital investment requirements (Irvine 2010). It is noteworthy that monopolists are price makers and fix the prices for their products. For this reason, they determine the quantity they produce to maximize their profits. The Australian Post is an excellent example of a monopolistic firm. As such, the company provides retail and financial travel services to the entire Australian population. It is the key firm in the postal service industry. The company is a government-owned corporation owned by the Commonwealth of Australia (Durie 2010). The company is well known for its horrendous service standards. Due to lack of direct competition, the firm periodically increases its prices, yet their services keep spiraling. As such, they increase their price levels without reciprocating in terms of quality services (Doherty 2010). The firm has a big market share and power in the industry, and most parcel and courier deliverers are only subcontractors. By and large, the Australian is a perfect depiction of the inefficiency associated with monopolists (Australia Post 2016). Oligopolies in Australia An oligopolistic market is one in which a few large firms dominate a particular market. The number is sufficiently small so that the actions of one firm affects the rival firms too. As such, the reaction function of firms in the market are interdependent, and the policy action chosen by one seller affects the actions of other competitors. For this reason, firms tend to collude in the market to set higher prices in the market. They also collude to create barriers and block the entry of new firms into the market. Notably, the collusion of firms in the market may lead to the creation of cartels that control output and prices. Typically, oligopolies compete on non-price factors such as warranties and advertising. There is also imperfect information between the buyers and sellers in this market structure (Khan 2016). The Australian gas markets is an example of an oligopolistic market structure. Today, there are three major suppliers in the eastern Australian gas markets. These firms account for more than 95 percent of the gas supply in the region. Particularly, BHP Billiton accounts for 38 percent while ExxonMobil provides approximately 41 percent (Stevens 2016). The market remains highly concentrated on the supply side, and there is limited competition in the market. There are also numerous official barriers to the free flow of natural gas across the state borders. This limits competition. Often, the two firms collude to set prices and release output that maximizes their profits. Monopolistic Competition This market structure is composed of a large number of firms and buyers who sell heterogeneous products. Essentially, this market structure combines the elements of a monopoly and perfectly competitive markets. The number of sellers in the market is large enough to create competitive conditions, but the differentiation of the products ensures that the goods are not perfect substitutes. Therefore, the firms have some form of monopolistic market power. In this regard, firms set their own prices. There is free entry and exit into the market for both buyers and sellers. Regardless, there exists imperfect information between the buyers and sellers caused by price differentiation and product quality. The hairdressing service industry is a classic example of a monopolistic competition market in Australia. Normally, each hairdresser sells a slightly differentiated product to their customers. Each hairdresser possesses a somewhat unique and differentiated set of skill and therefore offers slightly differentiated services to all their customers. Besides, there are many hairdressers in Australia and each face a downward sloping demand curve (Hairdressing 2016). Primarily, increasing the price for their services may cause the hairdresser to lose their clients. However, this is not necessarily the case where customers are loyal based on the quality of services rendered by their hairdresser. As such, some customers may attach value to the services of a particular hairdresser and therefore regard them as being more superior and therefore willing to pay more for the service. Conclusion By and large, the market structure is an important aspect of every industry. It determines the relationship between buyers and sellers in the market. It also defines the actions of sellers in the market with regard to the action of their competitors. It determines whether the firm colludes with other firms or compete to establish their market power. The market structure also determines the degree of product differentiation and competition that exists within a market. In this regard, it is crucial for firms to define their market structure to forecast growth and create an appropriate marketing mix that best appeals to its customers. Reference List BBC News. (2013). Australia Post's half-yearly profit down 56%. [Online] Available from: https://www.bbc.com/news/31580780 [Accessed 4 Dec. 2016]. Doherty, E. (2010). Australia Post wants to raise the cost of stamp by five cents. [Online] The Herald Sun. Available from: https://www.heraldsun.com.au/news/australia-post-wants-to-raise-the-cost-of-stamp-by-five-cents/news-story/fd4d18f36227675cf72aada2a2357d81 [Accessed 4 Dec. 2016]. Durie, J. (2010). Australia Post expands into electronic applications. [Online] The Australian. 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