Monopolistic and Monopoly Market Structure in Australia Assessment Answers

MONOPOLISTIC AND MONOPOLY MARKET STRUCTURE IN AUSTRALIA
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Introduction
There exists different market structures in the economy and the policy makers have to draft the policies depending upon the different market structures. It is important for the policy makers to understand the characteristics the market structure in order to determine the pricing strategies for the products belonging to different market structures (Bond amp Goldstein, 2015). Along with the pricing strategies, forecasting regarding demand and supply is done differently for different market structures. The purpose of the essay will be to elaborate upon the characteristics of monopoly and monopolistic market structure existing in Australian economy. The aim of the essay will be to find answer regarding why the government of Australian economy intervenes in monopoly market structure but fails to do so in monopolistic market structure existing in Australia. The essay will also highlight on the purpose of policy regulation in the monopoly market structure and the purpose of not intervening in monopolistic market structure.
Monopoly Market Structure
The main characteristic of a monopoly market structure is that the market consists of only one seller but many buyers. The buyers in the market have few choices for the substitutes present in the market. Thus, the only firm present in the market becomes the price maker. The example of Apple Inc can be taken to understand the concept of monopoly market structure present in the global economy. There are no close substitutes present in the market for the products offered by Apple Inc. The Apple Incis able to make this position in the market by offering differentiated products to its customers (Nepal, ampJamasb, 2015). The other characteristic of a monopoly market is that there exist high entry barriers for the new firms in the market. The barriers existing in such markets are intentionally created by the dominating firm in the market. As the monopoly market has no close substitutes for the products offered by the dominating organization, the dominating firm enjoys competitive advantage in the market. Due to its competitiveadvantagethe firm is able to decide the pricing structure for the entiremarket and is able to maximize its profits.
Due to its market power and the dominating position in the market, the organization is able toenjoy economies of scale in its production. However, the firm in order to maximize its profits charges higher selling cost that in its actual production costs and makes abnormal profits. As the organization is able to make abnormal profits, it is able to concentrate on other activities like research and development. By investing in research and development, the firm realizes the market opportunities and the needs of the customers thereby attaining and maintaining customer satisfaction and its profits in the market (Merhav, 2017).
Thus, it can be evaluated from the above discussion of characteristics of the monopoly market structure that this market structure is not beneficial from the point of view of customers as they are left with limited choice of products in the market and it is also analyzed that lack of competition in the market motivates the dominating organization in the market to involve themselves in inferior packaging or production practices.
Monopolistic Competition
In monopolistic market structure, the firms offer highly differentiated products from each other. Thus, it becomes difficult for the buyers in the market to find close substitutes of the products offered in the market. Alike from the monopoly market structure, there are large number of buyers and sellers in the monopolistic market structure. There are limited barriers to entry for the new firms in this market the prices are determined and controlled by the existing producers in the market.

Figure 1 Monopolistic Competition Long Run Equilibrium (Mankiw, 2017)
The above figure represents the long-run equilibrium in monopolistic competitive market. It can be evaluated that the characteristics of a monopolistic competitive market is similar to perfect competition market in the long run. However, in the monopolistic competition, the firms involve themselves in non-price competition in order to differentiate their products from the other firms present in the market. Thereby, offering heterogeneous products to the present customers in the market (Mercer, 2016). As indicated through the above diagram, the marginal revenue is equal to the marginal cost in the monopolistic market in the long run. The shift in the demand curve in the above diagram explains the increase in the existing competition level in the market through the entry of new firms in the market. It can also be analyzed from the above diagram that the firms in the monopolistic market structure are not able to earn abnormal profits in the long run.

Figure 2 Monopolistic Competition Short Run Equilibrium (Mankiw, 2017)
Figure 2 represents the short-run equilibrium in monopolistic competitive market structure. It could be analyzed from the above diagram, that in monopolistic market the firms produce the quantity till the point at which the marginal revenue is equal to the marginal costs. At this quantity, the firm is able to make average revenue (Karl et al., 2019). The total profitsearned by the firms in this market is equal to the difference between the average cost that is spent by the firminproducing the good and the average revenue that is earned by selling the product in the market. In order to computethe total profit, the difference between the averagecost and average revenue is multiplied to the total quantity of the products sold in the market.
In Australian market, the market of pizza restaurants can be regarded as a perfect example of monopolistic competitive market. There are many restaurants that offer variety of pizza to Australian customers including Pizza Gusto, Australia Pizza House, Dominos Pizza, Little Caesars Pizzeria and many other outlets. These outlets or restaurants in order to make themselves different from the other outlets in the market offer pizzas with different varieties and recipes in order to be ahead of each other in the market (Cosmanamp Schiff, 2019). The uniqueness in the varieties and recipes offered to the customers in the market makes them stand out and attract different segments of the customers to their outlets. The other examples of monopolistic market structure can be coffee outlets and automotive service companies existing in the Australian economy.
Reasons of why Government engages in policy intervention with respect to monopolies but not to firms operating in a monopolistically competitive industrial structure
In Australian economy, it has been seen that monopolistic market structure is free from the regulatory interventions of the government. The Australian government has no role to play in the monopolistic market structure and the market strategies are determined by the forces of demand and supply in the market (Etro, 2019). Thus, it is necessary to gain insights on why the government is not able to exercise its control and implement regulatory interventions in the monopolistic competitive market.
According to the study conducted by Esping-Andersen(2017), it becomes difficult for the Australian government to intervene in the monopolistic market structure and decide the pricing structure to be implemented because of the presence of different sellers in the market. Thus, the Australiangovernment has granted the freedom to the firms existing in monopolistic market structure to determine prices for their goods depending upon the demand and supply of their products in the market (Esping-Andersen, 2017). Thus, the firms are given the ability to regulate their own market in monopolistic market structure.
However, there can be other reasons of why the government chooses not to intervene in such markets. The government may also decide not to intervene in monopolistic competitive market because the government wants to give the customers the right to choose from variety of products in the market. As, if the government intervenes in the market this may demotivate the other firms to enter in the market and thereby reducing the level of competition in the market (Dhingraamp Morrow, 2019).
The customers in the market highly benefit from the increasing competition levels in the market as the existing firms in the market get motivated to offer high quality of production and packaging services to its customers in order to achieve customer satisfaction and thereby greater market share as compared to other competitors in the market (Celebiamp Fuller, 2012). Thus, the government does not intervene in the market in order to benefit the potential customers in the market.
However, the existing literature on market strictures also points out that the reason of giving market power to the existing forms in the market and increasing the choices of products to the potential customers in the market is a non-instrumental reason behind the fact that Australian government has proved to be unsuccessful in regulating the existing monopolistic market structure in the economy. Whereby, many studies points out to the fact that inability of the government to intervene in the monopolistic market structure is to protect the consumer rights and not because of inability of the government to regulate a market in which differentiated products are offered to the customers.
The Australian government grants protection to the firms in the monopolistic competitive markets and imposing certain barriers to entry and exist for the new firms in the market (Hong ampMisra, 2019). These barriers to entry and exit are in the form of legal requirement, natural monopolies and patents. Whereas, the jurisdictions of many countries ask the government to intervene in the market when the behavior of the dominatingorganization in monopoly market structure is abusive and can come under legal sanctions due to its excessive dominating role in the market (Devine et al., 2018). It becomes easy for the government to regulate monopoly market structure because there exists only one form in the market and that firm is able to achieve dominating position in the market due to its economies of scale and not because of the power granted by the government.
The perfect example of monopoly market structure can be electricity and telephone service providers in global economy. These organizations are able to attain market power in the market though their economies of scale. It becomes difficult for the other firms to enter in the market because of high investment need to start the business. According to Cremer et al. (2019), it becomes imperative for the government to intervene in such markets in order to make sure that the organizations are involved in fair pricing as the products offered by these organizations are public utilities (Cremer et al., 2019).
According to a study conducted by De Quidt et al. (2018), the governmentintervenes in the monopoly market structure and not in monopolisticcompetitivemarketstructurebecause the size of the firm in the monopoly market structure is comparatively greater than the firm in the monopolisticcompetitivemarketstructure. The dominating organization in the monopoly structure if exercisesits full market power has the ability to earn abnormal profitswhereby due to excess competition in the market the firms in the monopolistic competitive market are not able to earn abnormal profits. Thus, if regulatory intervention policies will be applied to monopolisticmarketsstructure then there are chances that the firms will incur economic losses (De Quidt et al., 2018)
Conclusion
Thus, it can be concluded that it becomes important for the Australian government to intervene in the monopoly market structure in order to ensure that the organizations are involved in fair pricing structure and are not discouraging the consumer rights in any way. It becomes easy for the government to impose regulatory policies in this market structure because the dominating organization attains the market power through its economies of scale and not though the grants of the government. The government imposes regulatoryinterventionsthroughthe use of copyrights and patents in monopoly marketstructure.
Whereby, it becomes difficult for the Australiangovernment to impose regulatory interventions in the monopolistic market structure because it will harm the consumer rights. The government believes that there is no need of imposing regulations on the firm in this marketstructure because they have entered the market by fulfilling the licensing requirements which are approved by the government itself. Thus, these firms are regulated through the prevailing demand and supply forces in the market and not by government intervention.

References
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Cosman, J., amp Schiff, N. (2019).Monopolistic Competition in the Restaurant Industry.
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