Monopolistic Vs. Competitive Sector
Monopolistic sector and competitive sector are two economy structures that differ by various factors like price control, market share, control, and barriers to entry and exit. In a monopolistic sector, there is only one firm that controls the supply and prices of goods and services in the market. The competitive sector, on the other hand, is composed of several firms and no single firm control the supply or prices of goods and services. In the real economic world, no sector is perfectly competitive or purely monopolistic. All real-world sectors combine both elements of monopolistic and competitive markets.
Differences between the competitive sector and monopolistic sector
In a monopolistic sector, firms control the prices of goods and services; therefore, the firms are the price-makers. In the monopolistic market, there is difficulty in entry and exit points because firms have a total market share (Zeuthen, 2018). A monopolistic sector involves one bigger seller, and buyers have no alternatives to buy the same goods and services. The prices are therefore high for goods and services.
On the contrary, in a competitive market, pricing is controlled by supply and demand. Firms have a small market share, and no single firm has enough total market control of the product. Firms can easily enter or exit the sector because the barriers to entry and exit are low. A competitive sector has many buyers and sellers. Customers can also choose from various firms from which they can purchase goods and services. Basically, pricing in a monopolistic sector is set by the seller while in a competitive sector, pricing is controlled by supply and demand (Zeuthen, 2018). In the competitive sector, the goods and services offered by all sellers are the same; therefore, no firm can alleviate the price. When a seller increases the price of a product, it loses its demand to the competitors. Therefore, a firm has to acknowledge the price determined by the supply and demand market forces.
In the monopolistic sector, the average revenue is higher than the marginal revenue. In order to increase sales, a firm has to reduce the prices of a product. Monopolistic competitors can increase the prices of their product without losing their customers. However, in the competitive sector, the average revenue and marginal revenue curves meet each other in perfect competition (Foster, 2014). In the monopolistic sector, branding and marketing are critical while in the competitive sector, marketing and branding are not essential. In the long run, competitive sector lead to the allocated efficiency while monopolistic sector does not guarantee long-term efficiency.
The demand curve in the monopolistic sector is sloping downward while in the competitive sector, the demand curve is horizontal. The curve in the monopolistic market is more elastic as compared to the demand curve in a competitive sector. The differences in elasticity of the demand curve arise because, in monopolistic, there are substitutes while in the competitive sector, there are no substitutes.
Strategies used by monopoly capital to stimulate sufficient demand
A monopolistic capital tries to encourage demand for their products by increasing the sale efforts and advertisement. Advertisement helps connect consumers with the necessary information they need to make a purchasing decision. Monopoly capital needs an information system to distribute goods and services effectively. In a monopolistic capital, advertising is aimed at achieving the profit needs of the advertiser (Foster, 2014). Advertising, therefore, reflects the balance of market forces in the monopoly capitalist. Large corporations do not use advertisement as a result of a free market but rather as a given type of monopolistic capitalism. Advertising allows big firms to expand their market share without participating in damaging price competition.
Differentiation of products in terms of physical aspects, description, location of the product, and consumer perception of the product also help stimulate demand. A strategic location of a product can influence the level of demand. For instance, an automobile manufacturer can probably sell more products if located near a car factory. Intangible aspects such as free delivery, the reputation of high quality, or guarantee of satisfaction or refund can also stimulate demand of a given product.
Planned obsolescence definition and its social consequences
Planned obsolescence is when a product is intentionally designed to have a determined lifespan. A product is usually designed and scheduled to relapse its functionality over a given period of time (Agrawal et al., 2015). The product’s lifespan is shortened intentionally in order to compel the future purchase of the products consumers.
Planned obsolescence leads to a culture of extravagance by fostering a “buy now and often buy” mentality. Planned obsolescence limits consumer liberty to keep products for a longer time by scheduling the relapse of the product’s functionality; therefore, promoting the culture of wastefulness. The culture of wastefulness creates the need to make more products; therefore, leading to wastage of natural resources.
Some products used, for example, in electronic products, are purchased from conflict zones; thus contributing to the violation of human rights by boosting funding of the civil war. Some minerals used in various products are acquired through mining, which can compromise the health and safety of workers and involve child labour and other human rights violations. Planned obsolescence ensures that the demand for conflict minerals is guaranteed (Agrawal et al., 2015). More manufacturing of products means environmental pollution, which not only affects humans but also wildlife and aquatic life.
In conclusion, monopolistic sector and competitive sector differ by various factors such as price control, market share and barriers to entry. In the monopolistic market, pricing is controlled by the firm while in the competitive sector, the prices are controlled by demand and supply. Firms use the differentiation of products and advertising to stimulate demand.
References
Agrawal, V. V., Kavadias, S., & Toktay, L. B. (2015). The limits of planned obsolescence for conspicuous durable goods. Manufacturing & Service Operations Management, 18(2), 216-226.
Foster, J. B. (2014). The theory of monopoly capitalism. NYU Press.
Zeuthen, F. (2018). Problems of monopoly and economic warfare. Routledge.