Introduction
There are four market types namely; monopoly, monopolistic competition, pure competition and oligopolistic markets (Peterson 1977). Pure monopolies and pure competition firms represent the two extremes of competition which is not easy to find in practice. The following is a review of an example of an organisation in Maryland operating in a pure competition market and one in a pure monopoly market.
Example of a firm operating in a pure competition market
Pure competitors such as retail operations however have no control of the market and thus no control over prices (O’Sullivan, Sheffrin, and Perez 2009). A firm in such a market could sell any quantities of its products without influencing the market prices.
It is quite difficult to get markets that are purely competitive where buyers have full knowledge, there are no barriers of entry and exit, buyers can easily switch from one seller to the other, and where there are a large number of buyers and sellers. However, retailers of agricultural commodities could provide a good example of a pure competition market.
Some traders have sought to differentiate their farm produce thus reducing price competition in this market. For instance, since consumers are becoming more health; conscious, traders of farm produce are venturing into natural foods in place of GMOs whereas packaging is also gaining prominence as a differentiation tool.
Market for agricultural products is set to change resulting to a decline in price competition. Traders are seeking other forms of competitive fronts such as packaging and focus of healthy products. Therefore, the market is set to convert into monopolistic competition where differentiation is critical. Suppliers should therefore brace themselves for non-price competition.
Example of a pure monopoly
Monopolies are organisations operating in a market where a firm has full control of the market. Such markets are characterized by a large single supplier of a product with no close substitutes. Monopolies such as oil producing companies face no competition and can influence market prices by regulating quantity supplied.
In practice, it is very difficult to get a pure monopoly since there are very few, if any, products that do not have close substitutes. Berlin Municipal Electric Company is however a good example of a monopoly firm. It is the sole operator in electric supply industry of Berlin Municipal.
The main factors contributing towards this monopoly is mainly the huge initial investment outlay required to invest in the electric sector and the government restrictions.
The Municipal electric companies are therefore maintained so as to reduce electricity costs and thus they do not compete with other private producers. They purchase energy in bulk and offer to consumers at cost with no profit motive. Their existence is therefore protected by the government.
The market might change with the increased popularity of alternative sources of power and proliferation of private power producers. To ensure that power is still affordable to the citizens, the government should offer subsidies to suppliers of clean energy. Municipal power suppliers should also be allowed to compete with private suppliers so as to ensure power is supplied in an efficient manner.
Conclusion
Pure competition and pure monopolies might not be sustainable in future. Traders in pure competitive markets will seek to differentiate their products whereas new entrants will cause monopoly powers to cease for pure monopolies.
Reference
O’Sullivan, A., Sheffrin, S., and Perez, S., (2009). Microeconomics principles, applications and tools, seventh edition. Prentice Hall
Peterson, W., (1977). Introduction to economics. New Jersey: Prentice Hall