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Competition And Market Electric power Economics Essay

For an extended period of time, De Beers has been successfully raising consumer demand for gemstones. The company is well-known for its monopolistic insurance policies over the last century, when it used its leading position to control the international diamond market. De Beers experienced lots of methods to ensure its control on the market: thus, it joined some self-employed manufacturers to its one route monopoly, it pressed the manufacturers who refused to join the cartel from the market by overfilling the market with gemstones, it bought and stored the diamond jewelry of other makers in order to regulate the costs (De Beers Company).

Pure monopoly means the conditions on the market, when only one company produces and sells a product that has no substitutes. The market access is bound and the company has complete control over prices. Thus, in real monopoly, the market is dominated by a big enterprise-monopolist fully handling the prices. Establishment of extremely high prices is restrained by the risks of a fall or a lack of consumer demand. Monopolist assesses demand and places the price at a rate that ensures the best profits on return (Larue, Gervais & Pouliot, 2008).

Monopolies are also general population utilities, the services of which are used by any business. The lifestyle of natural monopolies is justified by the actual fact that they best meet up with the public interest. In rural areas, such monopolies can be companies offering agricultural machinery, chemical substance fertilizer, seed and breeder farms, businesses that provide repair services. The primary top features of monopoly are as follows (Larue, Gervais & Pouliot, 2008):

There is merely one firm on the market, which affects the prices, modifying the proposal;

There are no identical products on the market;

Controlling the marketplace of raw materials in the industry, the company-monopoly excludes the emergence of new providers.

Thus, the market of real monopoly is the marketplace of one owner. Most frequently, these are the governmental organizations, with the state of hawaii monopoly in a position to solve various issues through pricing policies:

To set a price below the price for socially important goods to keep up their quality lifestyle;

To set a price covering the costs or providing a good income;

To set a high price to reduce consumption.

Returning to De Beers Company, for the last decade it's been undergoing changes turning out to be a more reliable company. A number of factors led to the necessity for transformation in the De Beers model (De Beers Company).

In 2004 the company was announced guilty in line with the 1994 accusation that De Beers had merged with Basic Electric to regulate the price of industrial diamonds; the company paid $10 million to america Team of Justice.

Contemporary diamond industry is noticeably differs from that of the previous decade, as it is now a complicated and continuously expanding geopolitical notion. Today, apart from De Beers, the most crucial players in the diamond business will be the African manufacturer countries (e. g. , Botswana and Namibia), Rio Tinto, Lev Leviev, BHP Billiton, Alrosa, Harry Winston, etc (De Beers Company).

3. Monopolistic Competition

Luxury Watch Industry: Head to http://images. businessweek. com/ss/06/05/watches/source/1. htm (Retrieved May 17, 2010). That is an interesting article on luxury wrist watches. Go through the slide show in the upper right screen (browse the prices!). Are these three businesses participating in a monopolistically competitive market? What characteristics of the good make the market monopolistically competitive? Explain.

A recent review by the blissful luxury Institute has decided the designer watches that are believed by the prosperous consumers to be the best out of the top 17 ultra luxury watch manufacturers: Franck Muller, Vacheron Constantin and Audemars Piguet, Patek Philippe and Breguet, though Rolex and Cartier were most famous brands. Nowadays, even not well-known watchmakers take the same part in monopolistic competition with the entire world market leaders (Business Week, 2010).

The market with monopolistic competition is seen as a the next features (Yomogida, 2010):

The existence of multiple buyers and vendors (the market consists of a huge number of unbiased companies and customers), the amount of which doesnt go over the one present in pure competition.

Low barriers for the accessibility in to the industry. This will not mean that it is simple to get started on a monopolistically competitive company; such difficulties as problems with enrollment, patents and licenses remain present.

To survive on the market over time, monopolistically competitive organizations need to produce diverse, differentiated products, which differ from that is offered by competing firms. Moreover, products may differ from one another by one or several properties (e. g. chemical substance composition of watches);

Buyers and sellers are perfectly educated about market conditions;

Predominantly non-price competition; advertising of products is vital for the development.

Companies of the type have a negative slope of the demand curve. In monopolistic competition, the end result is set at the level of profit maximization (marginal income equals marginal cost). However, when deciding on the establishment of charges for products, a monopolistic competitor acts like a monopolist: the purchase price for the products is defined at optimum level, i. e. at the amount of the demand curve for products.

Just as at the marketplace of perfect competition, in monopolistic competition the firm relies on the worthiness of the average total costs, deciding whether to stay on the market or leave the market. Thus, if the company continued to suffer from losses, this means that the common total development costs go beyond the proven price per device, and the organization will leave the market in the long run. It ought to be noted that, because the monopolistic competition is active in the decision-making, it cannot effectively allocate resources, which causes inefficiency of such organizations over time. It is nearly impossible to have a positive income at the market of monopolistic competition in the long term (Yomogida, 2010).

4. Oligopoly

The OPEC Oil Cartel Go to www. opec. org (Retrieved May 17, 2010). What are the organization's explained goals, which countries are people, and when was it founded? Could it be normal for them to be successful in keeping petrol prices high, or have they confronted troubles in keeping the cartel united before?

The Corporation of the Petroleum Exporting Countries (OPEC) can be an international intergovernmental firm (also known as a cartel), founded by oil-producing capabilities and including 12 countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador and Angola. The purpose of OPEC is to coordinate and create a common policy in regards to to oil creation among members of the organization, maintaining stable olive oil prices, providing a well balanced supply of essential oil to consumers, and take advantage of the assets in the olive oil industry (OPEC).

OPEC members control about 2/3 of world olive oil reserves. Their talk about on the globe engine oil makes 40%, or nearly the one half of the world petrol exports. At different times of its background, the Organization of Petroleum Exporting Countries manipulated from 25% to 60% of oil production in industrial countries (Hansen & Lindholt, 2008).

At once, the cartel signifies a very unpredictable structure, predicated on collusion in order to determine a monopoly price in the market, that can be unsatisfactory for some members of the cartel; this finally leads to the violation of the cartel agreement.

At first glance, the similarity of the cartel and monopoly is noticeable. But the cartel very seldom (as opposed to the monopoly), handles the entire market, because the plan has to offer with non-cartelized companies. Furthermore, the cartel users have quite a powerful enticement to cheat their associates, minimizing prices or positively promoting their product, which creates the conditions for the get of the market (Hansen & Lindholt, 2008).

Failure to totally and regularly use the cartel for the relationship of oligopolistic businesses is forcing these to conduct secret monetary policy in cost changes and in the delineation of the spheres of influence. Such assistance may express itself by means of price rigidity or management in price creation, and through special organizations such as patent pools.

The rigidity of prices is the oligopolistic practice, when, despite having changes in costs or demand, an organization is not inclined to improve prices, believing that if it must improve the price, others will observe, that will lead to lack of market share. In this manner, the cartel continues from changing prices due to the dread to unleash "the warfare of prices. " Leadership in prices means the practice, when the forming of prices for the merchandise is targeted on the costs set by the first choice - often dominating in this industry. This demonstrates the sort of implicit collusion, although its occurrence is not often proven (B¶ckem, 2004).

Patent pools signify an contract on specialty area and assistance of development, and the consortium - the union of organizations to carry out joint clinical research and joint building of large investment tasks. Both these organizations perform cartel functions and are the basis for the business of conspiracy to split the market.

Thus, the oligopoly is characterized by three features: - there are two or more competing firms in the industry, so the industry is not monopolized (OPEC and Russia relationship); - demand curve has a slipping character, so the industry does not have guidelines of free competition; - at least one large company operates in the industry, any action which causes a result of opponents (OPEC oligopolistic practices), so that there surely is no monopolistic competition (B¶ckem, 2004).

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