Wednesday, May 6, 2020

Managerial Economics Models of Duopoly Pertaining

Question: Discuss about the Managerial Economics for Models of Duopoly Pertaining. Answer: Introduction Markets are everywhere and lie at the heart of all economic activities. These markets differ from each other in respect of their structure, level of competition and their response to competition. Hence, an understanding of market structures is of immense importance for businesses to operate effectively in the industry. This understanding helps them to identify the characteristics of firms, degree of existing competition, number of buyers and sellers, type of product, capacity of a firm to influence other firms in the industry and other similar aspects related to market in which the firm operates. This further helps in identification of optimal price, output and level of promotion or differentiation required to stay profitable in a particular industry. Throughout the lifetime of any business organization, it is attached to one or the other market structure and its product, price, output and other factors are influenced by the market structure. The commonly identified market structures are monopoly, duopoly, oligopoly and monopolistic competition. The following essay discusses various aspects of these market structures in context of different industries of Australia along with highlighting their distinct features and identifying the industries with these market structures. Market structures in Australia Market structure refers to level of competition available in the market for particular goods and service. Market structure includes product as well as service sector and it identifies competitors available in particular market. It includes the condition of entry and exit of new buyer and seller for dealing. Market structure includes various forms of market such as monopoly, duopoly, oligopoly and monopolistic competition. These markets have different features and market strategy to deal with customer. Market structure helps to determine different market strategies and policies of the firms to stay in this competitive market. Monopoly market can defined as availability of single seller with huge number of customer without having any close substitute (Waschik, Fisher and Prentice, 2010). Duopoly is similar as oligopoly, which refers to availability of two independent firms in market without any agreement. Duopoly has effect in market as similar as monopoly that includes changing the price of product according to customer demand. However, under duopoly, there are two independent sellers of a similar product as compared to single seller in case of monopoly (Free, 2010). Oligopoly refers to market condition that includes few firms that sell homogonous product in market. In this market, it is not easy to identify the number of competitive firms in the industry because there are few firms available in the market and the act of these firms can affect the performance of other firms (Free, 2010). Monopolistic market structure is the most different of all the structures and is characterized by high number of buyers and sellers in the industry. Hence, any single firm cannot control the production of the firm as well as substitute of product. These markets differ not only in context of number of buyers and sellers, but also in context of the product that they provide, the prices they charge and marketing strategies that they adopt to lure customers. As monopoly is the only seller of a particular product, its product is highly homogeneous, prices are generally high and the seller hardly uses advertising strategies to lure customers. Hence, monopoly is the price maker (Waschik, Fisher and Prentice, 2010). Duopoly, on the contrary, affects consumers purchasing power as consumers purchase the product at high price due to high competition between these firms. However, firms under duopoly provide more or less homogenous products, indulge in price wars and have loyal customers (Free, 2010). In oligopoly market, firms can produce either differentiated heterogeneous products. Further, perfect oligopoly can occur with availability of industrial goods and imperfect oligopoly can occur due to availability of customer goods. At the time of production, these firms have the power for setting the price of goods and service. It provides different product at different price to the society. These firms have certain barrier in the entry of new firms in industry. Finally, monopolistic structure is highest degree of imperfect competition where sellers try to gain market share by providing highly differentiated products, using different promotional tactics and differentiated price levels. Any single firm cannot control the production of the firm as well as substitute of product, entry and exit is easy and the firms have to provide products as competitive prices (Hubbard et al., 2014). In context of Australia, all these market structures can be found in different industries. For example, Australia Post reflects a monopoly market structure. It is single supplier of posts and does not allow private enterprises for supply of postal from post office box (Carmody, 2015). Australias telecommunication and airline industries are example of duopoly market structure with Telstra and Optus in telecom industry and Virgin, and Qantas in airline industry (Ramli, 2015). The Australian retail/supermarket and banking industry faces an oligopoly market structure (Dagge, 2015). In supermarket retail segment, Woolworth and Coles are market leaders with 70-80% market share and other retailers like Aldi are followers (Ramli, 2015). In Australia, fast-food/restaurant industry has the condition of monopolistic competition where firms like McDonalds, Burger King and Subway provide highly differentiated products such as burger, sandwich, pizza and many more at competitive prices (Hubbard et al., 2014). Moreover, they also indulge in intense promotion and marketing strategies to capture market share. Conclusion From the above discussion, it can be concluded that Australian industry has high competition in the market that depend on the market structure such as monopoly, duopoly, oligopoly and monopolistic competition. In Australian market, Australia post has the situation of monopoly that have the barrier for private postal company to supply of postal from post office box. Further, duopoly market is found in telecom and airline industry. In addition, Coles and Woolworth have the oligopoly market condition in Australian retail market and finally fast food/restaurant industry in Australia has the condition of monopolistic competition that includes market players like McDonalds, Burger King, Subway and many others. References Carmody, B. (2015) Australia Post is hurting small businesses with PO Box monopoly, says delivery company Sendle, Smart Company. [Online]. Available at: https://www.smartcompany.com.au/growth/49035-australia-post-hurting-small-businesses-with-po-box-monopoly-says-delivery-company-sendle/ (Accessed: 14 December 2016). Dagge, J. (2015) Study finds Australian monopolies have better results, Herald Sun. [Online]. Available at: https://www.heraldsun.com.au/business/study-finds-australian-monopolies-have-better-results/news-story/83436800178abede28b01f82135a5da5 (Accessed: 16 December 2016). Free, R. C. (2010) 21st Century Economics: A Reference Handbook, Volume . UK: SAGE. Hubbard, R., Garnett, A., Lewis, P. and OBrien, A. (2014) Microeconomics. Frenchs Forest: Pearson Australia. Ramli, D. (2015) Australia's phone and internet market could become duopoly, says Optus chief, The Sydney Morning Herald. [Online] Available at: https://www.smh.com.au/business/australias-phone-and-internet-market-could-become-duopoly-says-optus-chief-20150604-ghgm5b.html (Accessed: 15 December 2016). Waschik. R., Fisher,T. and Prentice, D. (2010) Managerial Economics, Second Edition: A Strategic Approach. George: Routledge. ED (2016) Models of Duopoly Pertaining to Price Output Decisions. [Online]. Available at: https://www.economicsdiscussion.net/duopoly/models-of-duopoly-pertaining-to-price-output-decisions/3793 (Accessed: 17 December 2016). Layton, A.P., Robinson, T.J.C., and Tucker, I.B. (2011) Economics for Today. USA: Cengage Learning. TM (2016) Game Theory of Oligopolistic Pricing Strategies. [Online]. Available at: https://thismatter.com/economics/oligopoly-game-theory.htm

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