Different Market Structures in Australia Buyers and Sellers

Question: Discuss about the Different Market Structures in Australia for Buyers and Sellers. Answer: Introduction The number of buyers and sellers present in the market determines the market structure. Perfectly competitive; monopoly; monopolistically competitive and oligopoly are four types of market structures exist in the economy. When there are many buyers and sellers and the identical products are bought and sold; then the market structure is said to be perfectly competitive. In this market the price is determined through interaction of demand and supply. Hence, the participants are price takers. This kind of market structure is considered to be the most efficient one as it produces optimum output from the given resources (Baldwin and Scott 2013). In reality perfectly competitive market hardly exists and they take the form of a monopolistically competitive market. In a monopolistically competitive market structure, the products are closely substitute, however, the producers differentiate them in terms of colour; shape and packaging. This enables them to charge their own price and they have some sort of monopoly power over price. In a monopoly market, a single seller controls the market. There are many consumers in the monopoly market and the market is regulated with barriers to entry. Since, the monopolist is the sole producer, he is the price maker. A monopolist can charge high price and maximizes its revenue. In the oligopoly market structure, there are sellers and number of consumers. The oligopoly market produces almost identical product and the firms compete with each other to capture the maximum market share. The price is determined through collusion in this kind of market structure. In this paper, the different types of market structures in Australia will be discussed. Monopolistically Competitive Market In Australia apart from oligopoly and monopoly firms, the rest of the businesses operates under monopolistically competitive market. Restaurant and catering industry is an important industry under this market structure. In Australia, there are lots of restaurants who are engaged in huge competition among themselves. There are no barriers to enter this market, however, it requires huge investment to open a new restaurant and establish its brand. The prices of the restaurant meal have augmented by 1.7% in Australia (competitionpolicyreview.gov.au 2014). They offer same items but the price may vary from one restaurant firm to another. The variation in price takes place in terms of difference in taste of food; difference in quality and quantity. In restaurant industry, the price often varies due to quality of service provided. Due to quality of service, people often perceive the products offered are different from each other, even they are identical. Therefore, the monopolistically compe titive firms have a certain degree of monopoly power over price. The restaurants also offer different cuisines, for example, some offer Chinese; some provides continental and so on, in order to differentiate from other firms. The firms under this industry are engaged in promotional activity and advertisement to make its product different from others. Monopoly Market The famous monopoly firm in Australia is the Australia Post that operates in the postal service industry. This is operated by government of Australia and running the business for more than 200 years. This is the largest logistic company and monopoly provider of certain mail service (Ibisworld.com.au 2016). There are many firms in the postal service, but Australia Post has retained its monopoly power by charging a very low price for the mail delivery. It has largest system all over the nation and its service is available at every corner of this country. In the rural region, the service of this firm is available at same fare (ABC News 2014). This postal service firm practices second-degree price discrimination. It charges lower price for bulk mail delivery than single mail. Moreover, it charges according to the weight of the parcel. Price discrimination is a major characteristic of the monopoly firm. This firm has taken measures to advance its parcel operations, as online retail soppin g has created huge demand for parcels. Online parcel delivery demand is helping Australia Post to grow its business volume (Carbonell 2011). The government has restricted the private firms to drop their parcel on the boxes of Australia Post, this has created barriers to protect heritage of this company. at present, the Post is facing competition form postal service firms like FedEx and DHL. Therefore, Australia Post focuses on customer retention policy by developing its IT department. This firm can have more power over the postal and mailing service, if it pursues digital mail strategy. Oligopoly Market The supermarket chains of Australia operate under oligopoly market structure. Woolworths and Cole are two giant retail chains in this industries. They together form duopoly market structure. The other firms are IGA; Costco; Food Works; SPAR and Aldi (Knox 2016). Among all these, Coles and Woolworths are two giant supermarket chain that captures 70 to 80% share of the market. These two firms form cartel and sell similar quantity at same price. However, one can cheat and produce more than the cartel quantity at a lower price. Cheating by one firm enables it to increase market share. Since, both firms cheat by producing high quantity, the market price tends to fall. This price fall hampers the revenue earning of the other firms and they are lagged behind and unable to compete with these giant retain stores. However, the oligopoly firms do not engage in price war, as too low price may hamper the revenue earned (The Australian 2013). Therefore, it is beneficial to compete in terms of sale s in order to capture the maximum market share. The barrier to entry in the oligopolistic market structure is assumed to be high, as it entails massive investment to set up retail chain stores and to create the brand value. Conclusion From the above discussion, it is clear that different market structures are clear in the Australian market. Australia Post operates in the monopoly market. The supermarket chain of this country are of oligopolistic in nature, in fact Woolworths and Coles together forms duopoly market structure. In Australia, the restaurant and catering sector are of monopolistically competitive in nature. References ABC News. (2014). Post offices are the lifeblood of rural Australia. [online] Available at: https://www.abc.net.au/news/2014-01-08/elliott-australia-post/5190156 [Accessed 12 Aug. 2016]. Baldwin, W. and Scott, J., 2013. Market structure and technological change (Vol. 18). Taylor Francis. Carbonell, R. 2011. Australia Post plans to perfect pass the parcel. [online] ABC News. Available at: https://www.abc.net.au/news/2011-10-10/australian-post-announces-parcel-operations-shake-up/3459562 [Accessed 11 Aug. 2016]. competitionpolicyreview.gov.au. 2014. Competition Policy Review. [online] Available at: https://competitionpolicyreview.gov.au/files/2014/06/R_CA.pdf [Accessed 11 Aug. 2016]. Ibisworld.com.au. 2016. Postal Services in Australia Market Research | IBISWorld. [online] Available at: https://www.ibisworld.com.au/industry/default.aspx?indid=5033 [Accessed 11 Aug. 2016]. Knox, M. 2016. Supermarket monsters Coles, Woolworths and the price we pay for their domination. [online] themonthly.com.au. Available at: https://www.themonthly.com.au/issue/2014/august/1406815200/malcolm-knox/supermarket-monsters [Accessed 11 Aug. 2016]. TheAustralian. (2013). We are an oligopoly economy: Robb. [online] Available at: https://www.theaustralian.com.au/business/companies/we-are-an-oligopoly-economy-robb/story-fn91v9q3-1226699531519 [Accessed 12 Aug. 2016]. Article Links: https://competitionpolicyreview.gov.au/files/2014/06/R_CA.pdf https://www.abc.net.au/news/2011-10-10/australian-post-announces-parcel-operations-shake-up/3459562 https://www.themonthly.com.au/issue/2014/august/1406815200/malcolm-knox/supermarket-monsters