Match the various market structures to the relevant level of non-price competiti
ID: 2441699 • Letter: M
Question
Match the various market structures to the relevant level of non-price competition.
Oligopoly
(high use of non-price competition to promote rather than fight on price/ little use for non price competition/ high use of non-price competition to collude/ high use of non-price competition to to help differentiate thier products)
Monopoly
(high use of non-price competition to promote rather than fight on price/ little use for non price competition/ high use of non-price competition to collude/ high use of non-price competition to to help differentiate thier products)
Perfect Competition
(high use of non-price competition to promote rather than fight on price/ little use for non price competition/ high use of non-price competition to collude/ high use of non-price competition to to help differentiate thier products)
Monopolistic Competition
(high use of non-price competition to promote rather than fight on price/ little use for non price competition/ high use of non-price competition to collude/ high use of non-price competition to to help differentiate thier products)
Explanation / Answer
Increasing demand of a particular product out of so many products in the market in the way of increasing usefulness and benefits instead of decreasing price is non-price competition.
Oligopoly: The number of firms is very limited here. Example of this market is crude oil, steel market, etc. Entry could be done but it is very difficult because of very high fixed cost.
Pricing: Price can’t be increased by a firm because the other firms may not follow that price. It creates loss to the firm. Price can’t be decreased by a firm (because of earning higher profit) because the other firms will immediately follow that price. Therefore, each firm has to follow the prevailing market price and should increase the usefulness of product for increasing demand. These firms may come under a secret understanding (called collusion) to exploit the market.
Answer: High-use of …. To collude; 3rd option
Monopoly: In this market there is only single seller but huge number of buyers. Therefore, there is no competition for seller (because of entry-barrier for other firms) and also there is no substitute product. Example of it is the utility service provided in a city.
Pricing: Here the demand curve is downward slopping. It means increasing consumption reduces the price of product. But the overall price is set by the monopolist itself. Therefore, there is no as such pricing challenge.
Answer: Little use for … competition; 2nd option
Perfect competition: There are large number of buyers and sellers, dealing with homogeneous products, having no-entry or exit barrier. Consumer goods like bread, butter, edible oil, are the examples of perfect competition.
Pricing: Here the price of a product is fixed, based on the market demand and market supply. Both buyers and sellers have to accept that price. Since there are many numbers of firms, a single firm can’t influence on the price. So the firms are price taker.
Answer: High-use … fight on price; 1st option
Monopolistic competition: This is the combination of perfect competition and monopoly, where there is large number of buyers but dealing with differentiated products. Since the products are similar but not identical, each firm enjoys some monopoly power.
Pricing: Here also the demand curve is downward slopping and same as monopoly. But keeping customers at that price is a great challenge, since customers may switch to an alternative because of smaller price.
Answer: High use … differentiate their products; 4th option