In a market, different type of structures of economy exists. The two most common market structures are monopoly market structure and perfect competitive market structure. It should be noted that there are other marketing structures. A monopoly market structure is where only one manufacturer or supplier of the same product exists. On the other hand, perfect competitive market structure is where different suppliers or manufacturers of the same product exists. In order to make a comparison of the two structures, the use of company examples will be appropriate for easy understanding.
An excellent example of a monopoly is the United States Postal Services (U.S. Mail). The U.S. Mail could trace its roots in 1775 when Benjamin Franklin was appointed as the first post master general. It is the only company in the whole of United States that offers postal services. The company is legally obligated to serve all the Americans despite their geographical location. It is worth noting that private companies that exists do not offer postal services, they only offer delivery services. For this fact, U.S. Mail is the only company that offers postal services making it to be a monopoly.
The second example is of a perfect competition company. This is the United State Bicycle Industry. This is one of the most competitive industries in America where manufacturers try different techniques to woe customers to buy their products. In this industry, several companies offer the same products and services. Companies in this industry often struggle to make profits and at the same time win as many customers as they can. This shows that there is a lot of competition in the U.S. Bicycle Industry. For these facts, this industry can be classified as perfect competition company.
The two companies have only one similarity in accordance to their market structures. Their main aim is to maximize profits and lowering expenses. According to the U.S Mail, the company is trying to come up with strategies that are going to maximize profits and at the same time decrease their expenses. This is similar to the U.S. bicycle Industry where the different companies are trying to maximize profits as they minimize their expenses for the purposes of surviving in the industry.
When the two industries are compared, notable differences can be observed. The market structure of the United States Postal Services contains only one supplier of the services. In this situation, the company does not have any competitors who are trying to win customers. Additionally, in this industry, the United States Postal Services do not struggle in providing the services to consumers. This shows that they do not have any competitors in the market that will make them to struggle woe the customers to use their services. Therefore, whether a person likes it or not, he or she must use the services of the United States Postal Services.
On the other hand, the U.S Bicycle industry is different because many companies exist in this industry. Companies struggle to excel so that they can be unique for the purposes of wining as many customers as possible. This shows that there are many companies or competitors in the industry. Customers who are buying bicycles they are free to decide the company they are going to make the purchase depending their taste. This shows that the two markets are totally different from each other.
Second, U.S. Postal Services set their prices as they please. They do not follow any criteria in the market to fix their prices. What the postal service does is to deliberate on the price they are going to charge their customers as per their set targets. This is because in a monopoly there are no competitors. Therefore, price is not among the strategies to woe customers as a marketing technique. For this fact, prices are high and customers do not have an option but to oblige to the prices set by the U.S. Mail.
On the contrary, in the U.S. Bicycle Industry, prices are set by the forces of demand and supply. In this case, the suppliers set prices in accordance to market. For example, a customer may not be willing to buy a certain type of bicycle in a company because it is of a higher price. However, a different company might introduce the same model of bicycle at a lower price. In this case, customers start to buy the bicycle that is lower. This means that the other company will be forced to lower their prices to attract customers. It should be noted that there is a certain price suppliers cannot go lower. Therefore, it can be clearly seen that prices are set based on the forces of demand and supply.
In a monopoly market structure, there is no freedom of entry and exit. In the case of U.S. Postal Service, it is not easy for a company to join and exit the market. This is because many barriers are put in place to ensure no company will be able to join without fulfilling them. For instance, it is a government policy to provide postal services to the citizens of the United States. This is because the provision of these services is sensitive to be left to the hands of private companies.
However, in the case of U.S. Bicycle Industry, it is easy for a company to join and exit the market. This is because there are no barriers put in place to resist companies from joining. Moreover, the companies can exit as they please. This can be attributed to the fact that bicycles are not sensitive products to be left in the hands of private suppliers. For this fact, companies wishing to join this market can do it easily as compared to companies wishing to join postal services.
The profit generated by the two companies is totally different. In U.S. Mail, they achieve super normal profits in long-term business operations while companies in the U.S. Bicycle Industry achieve normal profits. This is because the U.S Mail covers a wide region and there are no competitors. Moreover, they can set prices as they please in accordance to their marketing strategies. On the other hand, companies in the U.S. Bicycle Industry only achieve a small amount of profit because they do not cover a wide range of customers and there are so many competitors. Additionally, prices are set by the forces of demand and supply.
In the above analysis, it can be understood that a monopoly market is when there is only one supplier of a certain product or service while perfect competitive market is when there are many suppliers producing the same product. The only similarity in these two markets is that companies try to maximize profits and at the same time reduce expenses. However, the two are different. In a monopoly, entering and exit of the market is difficult as compared to perfect competition. Prices are set by the forces of demand and supply in a perfect competition unlike monopoly where the company set prices for itself. Competitors are many in a perfect competitive market leading to normal profits while in a monopoly there are no competitors leading to super normal profits.