Wonks it Is the Opinion of This Essay
- Length: 6 pages
- Sources: 5
- Subject: Business
- Type: Essay
- Paper: #69118907
Excerpt from Essay :
It is the opinion of this author that equilibrium and efficiency are the ideal aim of corporations in the marketplace because it provides them with opportunity to maximize their profits over the long-term. While it may not necessarily provide for higher than normal profits at all times. While it does for the companies in the competitive marketplace to stay in the game. Having the ability to decide price and preempt market spikes and dips distinguishes nearly perfect competitive markets from monopolistic and monopoly types. In a perfectly competitive and efficient market, prices, choice, quality and customer service is driven by the consumer. This will mean that each item produced by the firm will exhibit prices that are determined by the market which. This will in turn tell the company how much product needs to be produced in order to facilitate equilibrium in the marketplace. Just as most students in their first year of economics learn that monopolies are tough on the infrastructure of the marketplace, they learn as well that moving towards marketplace equilibrium is the driving goal of firms in the market. This is something which can only be achieved through the efficiency of a perfectly competitive market.
John Rockefeller once said tongue in cheek that "competition is a sin (Allen, 1976)." For the pioneer of monopoly capital, he knew exactly what would benefit him, namely getting rid of his competition. The question of monopolistic competition and who benefits depends on the perspective of each stakeholder. Nickel found in his study that increased competition "is associated with a significantly higher rate of total factor productivity growth (Nickell, 1996, 724)."
Given that the new Wonks company is now run as a monopoly, how will this benefit the stakeholders involved, how will this affect government, business and consumers. Given the transition from a monopolistically competitive firm to an outright monopoly, what will be the changes with regard to prices and output in both of these market structures? What market structure is more beneficial for Wonks to operate in, and will this be the same market structure that will benefit consumers?
In the opinion of the author, monopoly, especially outright monopoly, is more advantageous to the stockholders and company management in terms of profits and stability. The consumer is the loser in terms of price, choice, quality and customer service and satisfaction. Some, like the government swing in between depending on which of the previous groups is group is in ascendancy. Fortunately for the consumer, in the United States the laws against monopoly combinations (while not perfect mitigate this to some degree. Fortunately for the consumer, there are other smart lawyers out there fighting for their interest who will represent them in court, as we also see in this essay. Such attorneys would usually file a complaint with the Antitrust Division of the United States Justice Department claiming that Wonks had monopolized the potato chip industry. If Justice concurs, they may prepare or at least threaten a civil suit. They might also file a complaint with the Commerce Department or the Interstate Commerce Commission (Gilligan, Marshall, & Weingast, 1987, 1-2) .
Economists have traditionally assumed a number of different buyers and sellers as stakeholders in any given marketplace. This means that there is competition in the market. Therefore, this allows prices to change in response to variations in supply and demand. Also, for just about every product there exist substitutes. In other words, if one product becomes prohibitively expensive, then a buyer can choose cheaper substitutes instead. In a highly competitive market with many buyers and sellers, both consumer and supplier retain an equal ability to influence price. Monopoly constitutes a market situation in which there is only a single seller and very large number of buyers. As opposed to this, monopolistic competition is a market situation where there are a large number of sellers and large no. Of buyers. If there is over 80%, this indicates an extremely high level of concentration with 100% being a pure monopoly Case, Fair, & Osteer, 2009, 289.
There is salient historical in recent memory that provides an excellent example: Microsoft during the 1990s. If one examines this, they will find a company that maintained a stranglehold on the software market with their market dominating Windows operating systems. The Microsoft Corporation continually came out with new operating systems during this period, however none of the subsequent programs were largely superior to the previous one. A pronounced and general sense of apathy started to surround the hi-tech ans computer industry because there were no other firms that could challenge Microsoft in their dominance. In the true sense of the word, Bill Gates had built a near perfect monopoly. Fortunately, Apple was chomping at the bit to jump in during this time period and their entry opened up innovation, competition and price reduction that benefited consumers. The Federal lawsuit against Microsoft aided in this (Baseman, Warren-Boulton, & Woroch, 1995, 3-9) .
The biggest mistake that comes from the above analysis would be confusing efficiency in the market with maximizing profits for the company. It is obvious that if any one corporate stakeholder maintains a stranglehold on the marketplace (such as Microsoft), then it is possible to achieve abnormally high profit levels. It is obvious that if they are only company in the marketplace producing any products or services, then consumer stakeholders will be forced to buy only their product, ergo so this firm will be generating 100% of their profits from the market. It is important to realize that this, in the short run, is also more efficient for production in the market place, but not allocation. It is the most efficient for production, because they will consistently be producing at the level that maximizes their profit, but never higher. For Microsoft, this meant continually meeting the demand they felt was present in the marketplace, but never producing at higher levels. It is less efficient in the short run for allocation because there were always hundreds of choices for different items, so the market held several different buying options and the supply side of the curve is high in this case. Maximizing profits and creating an equilibrium in the marketplace through market efficiency are two different things. And if this paper was concerned with which of these two economic models could provide the highest profits, monopoly would win (ibid, 33).
Price discrimination in a monopoly is also one of the huge disadvantages for the marketplace. If a firm has a hold on the market, then they can charge whatever they feel the market can withstand. This does not necessarily reflect the true value of the product being sold. In a perfectly competitive market, the price of the item will be driven by exactly what the marketplace deems it is worth. Since there are so many different firms selling in the competitive market, they do not have the ability to set their own prices for the output, they have to follow the supply and demand of the item in order to determine what the consumers will pay for their item in the marketplace. While price discrimination may provide the monopolistic firm an ability to maximize their profits, the detriment to this comes to the consumer due to the reason that they are more than not likely to being charged more than what the product is truly worth (Spence, 1975, 217) .
In monopolistic competition, close product or service substitutes are usually there in the ultimate sense that products and services are different in terms of size, taste, quality, color, packaging, brand recognition, price and so on. As in case of other products such as soap, toothpaste, bagels, etc. But in monopoly, there is no close substitute of the good product or service. If anything is available, it will usually be a very remote substitute in case of monopolistic competition, there is aggressive advertising. However, in monopoly, there is little or no advertising. In monopolistic competition, the demand curve faced by the corporation is more elastic because of availability of close substitutes. Further, it means if a company raises its price, it will loose a large market share as customers will in measure to close substitute products and services present in the market. However, in the case of monopoly, the demand curve faced by the company is less elastic because of no close substitutes. If the corporation raises its price, demand face quantity as it is only one in the marketplace (Case, Fair, & Osteer, 2009, 275-284).
To conclude, it is the opinion of this author that equilibrium and efficiency are the ideal aim of corporations in the marketplace because it provides them with opportunity to maximize their profits over the long-term. While it may not necessarily provide for higher than normal profits at all times, it does allow the companies in the competitive market to stay in the game. Having the ability to decide price and preempt market spikes and dips distinguishes nearly perfect competitive markets from…