Test: Non Competitive Markets - 1 - UPSC MCQ

A homogeneous product is one that cannot be distinguished from competing products from different suppliers. In other words, the product has essentially the same physical characteristics and quality as similar products from other suppliers. One product can easily be substituted for the other.

The monopolist is the sole producer in the market and thus has the ability to set prices for its product. Since the monopolist faces a downward sloping demand curve we can conclude that the firm is not a price taker because the firm needs to lower its price in order to sell additional units of output this implies that they have some degree of price setting power.

A type of market structure, where the firm has absolute power to produce and sell a product or service having no close substitutes. In simple terms, monopolised market is one where there is a single seller, selling a product with no near substitutes to a large number of buyers. As the firm and industry are one and the same thing in the monopoly market, so it is a single-firm industry. There is zero or negative cross elasticity of demand for a monopoly product. Monopoly can be found in public utility services such as telephone, electricity and so on.

Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods as opposed to the perfect competitive market scenario. As the name suggests, competitive markets that are imperfect in nature.

Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms. A monopoly is one firm, duopoly is two firms and oligopoly is two or more firms.

Pure or perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their product). Market share has no influence on prices.

Explanation:
Oligopoly:
- Oligopoly is a market structure where a small number of firms dominate the market.
- These firms have significant control over the price and quantity of the goods or services they produce.
Identical Products:
- When firms in an oligopoly produce identical or homogeneous products, it is known as pure oligopoly.
- In this case, consumers perceive no difference between the products offered by different firms in the market.
Pure Oligopoly:
- Pure oligopoly is characterized by the following features:
- Few large firms dominate the market.
- The products offered by these firms are identical.
- There are significant barriers to entry, which limit the entry of new firms into the market.
- Firms in a pure oligopoly often engage in non-price competition, such as advertising or product differentiation, to gain a competitive advantage.
Collusive Oligopoly:
- Collusive oligopoly is a type of oligopoly where firms in the market coordinate their actions to maximize their joint profits.
- In collusive oligopoly, firms may engage in price-fixing or other forms of collusion to limit competition and maintain higher prices.
Independent Oligopoly:
- Independent oligopoly refers to a situation where firms in the oligopoly market act independently and do not coordinate their actions.
- In this case, each firm makes its decisions regarding pricing, output levels, and other competitive strategies without any collaboration with other firms in the market.
Conclusion:
- The correct answer to the question is A: Pure oligopoly.
- Oligopoly having identical products is known as pure oligopoly, where few large firms dominate the market and offer identical products to consumers.

Price Discrimination
Price discrimination refers to the practice of charging different prices for the same product or service to different customers. It can be seen as a strategy used by firms to increase their profits by segmenting the market and extracting maximum consumer surplus.
Types of Market Structures
There are different types of market structures, each characterized by a different level of competition. These include perfect competition, monopolistic competition, oligopoly, and monopoly.
Conditions for Price Discrimination
Price discrimination can only take place in specific market structures where certain conditions are met. Let's explore these conditions in relation to the different market structures:
1. Perfect Competition: In a perfectly competitive market, there are many buyers and sellers of a homogeneous product, and no single firm has control over the market price. Price discrimination is not possible in perfect competition as firms are price takers and cannot charge different prices without losing customers.
2. Monopolistic Competition: Monopolistic competition is characterized by a large number of firms selling differentiated products. Each firm has some control over the price it charges. While price discrimination is theoretically possible in monopolistic competition, it is not commonly observed due to the ease of entry and competition from similar products.
3. Oligopoly: Oligopoly refers to a market structure where a few large firms dominate the industry. These firms have some degree of market power and can potentially engage in price discrimination. However, due to the strategic interdependence between firms, price discrimination may be difficult to implement effectively.
4. Monopoly: A monopoly exists when a single firm controls the entire market. In this case, the firm has significant market power and can engage in price discrimination. A monopolist can segment the market based on factors such as location, time, or customer characteristics and charge different prices to different buyers.
Conclusion
In summary, price discrimination is only feasible in market structures where firms have some degree of market power and control over the pricing. While it is theoretically possible in monopolistic competition and oligopoly, it is most commonly observed in monopolies where a single firm dominates the market. Therefore, the correct answer is D: Monopoly.

Monopolistic competition occurs when an industry has many firms offering products that are similar but not identical. Firms in monopolistic competition typically try to differentiate their product in order to achieve in order to capture above market returns.

Marginal revenue means additional revenue generate/received from the sale of additional unit of output.In imperfect (monopoly) when TR increases MR decreases , when TR become maximum MR reaches to zero.