Hey folks~ How's revision coming up??? Hope everything's going good and fine for everyone.
Do take your time to think about H3 Econs. Interested peeps can give your name to Miss Hazel.
Although I personally do not think that it's totally important to have fabulous grades to take H3 Econs, but there should be of course a minimum requirement. You should be doing fairly well for your Econs and at least passing the rest of your subjects. I'm not really a very academic-centric person but the thing for this is that if you're already struggling with your other subjects, doing H3 will be adding to your already-very-heavy load.
But on the other hand, if you're coping with your subjects and have an interest in Econs, why not give H3 a try? It will allow you to see the economy in a more matured perspective and if you manage to do it well, will up your chances of getting into a good university or even a scholarship. But more importantly, I think the whole learning experience will be invaluable.
Just a bit more before you end your promos, so press on so that you can enjoy your holidays totally later.
GANBATTE people!!!
Tuesday 25 September 2007
Wednesday 12 September 2007
Market Structure (MC & Oligopoly) Section 3 Q2
Part a)
Industries differ in their degree of competition and we divide them into perfect and imperfect compeition based on the degree of control that the firm have over price, freedom with which the firms can enter the industry and the nature of the product. Perfect competition is an economic model that describes a hypothetical market structure in which there are many producers selling identical product and have no market power to influence prices. I
n the case of the petrol retailing stations, as shown in the extract, the players in the industry are few and big. The four main players that can be found in Singapore are Caltex, Shell, Exxon-Mobil and SPC. Due to the small number of players in the industry, they each hold a large market share which enables them to influence prices. As seen in the extract, these petrol retailing stations are able to give discounts, which shows that they are price-setters, unlike perfect competitive firms, which are price-takers.
Next, unlike perfect competitive industries which have no barriers to entry due to the low start-up cost and small output, there is high barriers to entry for the petrol retailing industry. The barriers to entry include the high fixed costs of setting up the stations, obtaining of license to set up the stations and also the strong branding that had received loyalty from customers. In order for a new player that is attracted by the profits of the petrol retailing industry to enter, it will have to apply for a license, arrange for petrol supply and spend enormous sum of money in setting up the infrastructure of the station. Thus, it is different, compared to the easy entry to perfect competitive industry.
Another characteristic that the 4 petrol retailing firms exhibit that the perfect competitive firms do not is interdependence of the firms. Each petrol retailing firm is affected by its rivals actions. As given in the extract, there was a fierce price war among them. This is the result of the firms reacting to price cuts by their rivals. This is because, with the small number of firms in the industry, they have to fight aggressively for a bigger share of the industry profits. This is unlikely to happen in the perfect competitive firms as everyone is a price-taker, selling identical products.
Also, the petrol stations practise non-price competition such as advertising on TV, using posters to display their prices, providing services like wiping of the windscreen when a customer patronizes, giving accumulative loyalty points which may be used to redeem gifts. On the other hand, perfect competitive firms which sells identical products and are price-takers, do not engage in non-price competition as they have no incentive to do so. Therefore, from the above evidence, I conclude that the petrol retailing stations are definitely not operating in perfect competitive conditions as their characteristics are different. Looking at the characteristics that were discussed, classifying them under the oligopoly market structure will be more suitable.
Part b)
Price competition is where a firm attempts to distinguish its product from its rivals by reduction of price. This is contrasted with non-price competition, which is a market strategy where the firm distinguish its product on the basis of physical design, quality, extra services or through advertising. In this essay, I define "desirable" for the petrol retailing industry as the ability to receive higher profits and "desirable" for its consumers as the ability to enjoy better quality products, higher variety of products and low prices.
(click to enlarge image)
From the above diagram, we can see that as price is reduced from P1 to P2, revenue gained by the firm increased from the purple area to the green area. This is desirable for the firm as increasing total revenue is an aim of the firm.
Industries differ in their degree of competition and we divide them into perfect and imperfect compeition based on the degree of control that the firm have over price, freedom with which the firms can enter the industry and the nature of the product. Perfect competition is an economic model that describes a hypothetical market structure in which there are many producers selling identical product and have no market power to influence prices. I
n the case of the petrol retailing stations, as shown in the extract, the players in the industry are few and big. The four main players that can be found in Singapore are Caltex, Shell, Exxon-Mobil and SPC. Due to the small number of players in the industry, they each hold a large market share which enables them to influence prices. As seen in the extract, these petrol retailing stations are able to give discounts, which shows that they are price-setters, unlike perfect competitive firms, which are price-takers.
Next, unlike perfect competitive industries which have no barriers to entry due to the low start-up cost and small output, there is high barriers to entry for the petrol retailing industry. The barriers to entry include the high fixed costs of setting up the stations, obtaining of license to set up the stations and also the strong branding that had received loyalty from customers. In order for a new player that is attracted by the profits of the petrol retailing industry to enter, it will have to apply for a license, arrange for petrol supply and spend enormous sum of money in setting up the infrastructure of the station. Thus, it is different, compared to the easy entry to perfect competitive industry.
Another characteristic that the 4 petrol retailing firms exhibit that the perfect competitive firms do not is interdependence of the firms. Each petrol retailing firm is affected by its rivals actions. As given in the extract, there was a fierce price war among them. This is the result of the firms reacting to price cuts by their rivals. This is because, with the small number of firms in the industry, they have to fight aggressively for a bigger share of the industry profits. This is unlikely to happen in the perfect competitive firms as everyone is a price-taker, selling identical products.
Also, the petrol stations practise non-price competition such as advertising on TV, using posters to display their prices, providing services like wiping of the windscreen when a customer patronizes, giving accumulative loyalty points which may be used to redeem gifts. On the other hand, perfect competitive firms which sells identical products and are price-takers, do not engage in non-price competition as they have no incentive to do so. Therefore, from the above evidence, I conclude that the petrol retailing stations are definitely not operating in perfect competitive conditions as their characteristics are different. Looking at the characteristics that were discussed, classifying them under the oligopoly market structure will be more suitable.
Part b)
Price competition is where a firm attempts to distinguish its product from its rivals by reduction of price. This is contrasted with non-price competition, which is a market strategy where the firm distinguish its product on the basis of physical design, quality, extra services or through advertising. In this essay, I define "desirable" for the petrol retailing industry as the ability to receive higher profits and "desirable" for its consumers as the ability to enjoy better quality products, higher variety of products and low prices.
Price competition can be desirable for the firms. In the short run, a decrease in price due to discounts, will induce an increase in quantity demanded for petrol. This is especially so if consumers are indifferent to the different brands of petrol and deem them as similar. Demand is also more price elastic in the short run for the industry as rivals will not have made any responses to the price cut yet.
(click to enlarge image)From the above diagram, we can see that as price is reduced from P1 to P2, revenue gained by the firm increased from the purple area to the green area. This is desirable for the firm as increasing total revenue is an aim of the firm.
In addition, market share is enlarged as customers may switch to buy from the firm which is able to give a larger discount, hence enlarge customer base. If the new customers can establish loyalty to the firm, it will enhance the firm's future revenue.
However, price competition can be undesirable, especially for the petrol retailing industry, which is oligopolistic. As a non-collusive oligopoly, the firms' behaviour can be explained by the kinked demand curve theory.
(click to enlarge image)
As shown in the diagram above, price increment of a firm will not be reacted by rivals and thus, demand when price increase is price elastic. However, due to the interdependent nature of oligopolistic firms, price reduction will be matched by the other firms, thus demand during price reduction is price inelastic. If Shell make a price reduction, it can be foreseen that the other petrol retailing firms will reduce prices too. When demand is price inelastic, price reduction will lead to a drop in revenue.
This is especially disastrous for a firm in an oligopoly as it has high fixed cost. The huge discounts given will eat into its profits. In the long run, the one of the firms may not be able to sustain the price competition and may be squeezed out as a result.
Although price competition is desirable for the consumers because it leads to lower cost in using the car, which means higher consumers' surplus, as a firm exit the industry, it is undesirable for consumers as they will now have less variety of choices. Also, with the exit of a firm, supply of petrol in the industry will decrease and prices are most likely to increase again.
Non-price competition, on the other hand, can be desirable for the industry. Through giving out of freebies and accumulated loyalty points and advertising, the petrol retailing firm will be able to make the demand for its product more price inelastic as consumers will perceive its product as more different to its rivals'.
Non-price competition can also allow the firms to attract customers who are interested in their promotional items.
However, non-price competition can be undesirable for the industry as the firms will have to incur a higher cost from the freebies and advertising. This will therefore reduce profits of the firms.
For the consumers, the advantage of non-price competition include getting freebies and getting better service at these firms.
Informative advertising is also desirable for the consumers as it reduces the search cost of the consumers and enable to make better informed decisions as to which product to choose.
On the other hand, advertising, in particular, persuasive advertising may be misleading. Persuasive advertising often sells a form of lifestyle without giving much real information about the product. Consumers may be mislead into believing the advertisements and make decisions that are not wise.
In conclusion, in the short run, price competition may be desirable for both the firm and the consumers, however, in the long run, there are more disadvantages than advantages because of the interdependent characteristic of the industry. As for non-price competition, it is dependent on how the firms are conducting it. If the firms are able to carry out improvement in quality service and provide useful information of their products, it will be desirable for both the industry and the consumers.
Citation:
Price elastic demand curve drawn by yours truly.
Kinked demand curve image taken from http://www.tutor2u.net/
*****
I think I missed out the P1 and P2 labelling, but I guess you should have no problem figuring out that one right?
Monday 10 September 2007
Market failure Section 3 Q1(a)
Public goods are goods that are collectively consumed and give collective benefits to society such that the benefits are non-excludable. Merit and demerit goods are private goods, they have the characteristics of excludability and rivalry in comsumption. Public goods on the other hand have characteristics of non-excludability and non-rivalry in consumption.
One characteristic that make merit and demerit goods is the non-excludability in consumption. Merit and demerit goods which are private goods are excludable, while public goods are non-excludable. It means that once a public good is produced, it is available to all members of the community, irrespective of whether the individuals pay for it or not. Consumers who do not pay for the good cannot be excluded from consuming the good. This will result in the "free-rider" problem, in that, consumers will not want to pay to consume the good as they know that it is impossible for firms to exclude them in the consumption of the good. The result of this would mean that no private firms would want toundertake produciton of such goods as it is impossible to charge the consumers for the good on the basis of how much they use. The goods would thus be non-marketable. An example of a public good is national defence. Once defence is provided for the country, everyone in the country benefits from it, even the non-paying consumers such as students and tourists who do not pay taxes.
On the other hand, private goods such as healthcare is a merit good, is excludable in consumption such that non one can consume the good without paying for it. There will not be any "free-rider" problem and firms will want to undertake production of such goods as it is possible to charge the consumers for the good on the basis of how much they use. The goods would thus be marketable. Demerit goods such as cigarettes also have the characteristic of excludability in consumption and they are also marketable and do not have any "free-rider" problem.
Another main difference between private and public good is rivalry in consumption. For public goods such as street lights, they are non-rival in consumption such that the consumption of the good does not reduce the total supply available to others. For example, street lighting, upon consumption by one person, does not become less available to others. This is because there is no extra cost incurred by providing for another person's consumption (i.e. marginal cost is zero). Merit and demerit goods on the other hand are rival in consumption such that upon consumption by one person, would mean that it is less available to others. There is a cost incurred by the producer for the provision of an extra unit of the product (i.e. marginal cost is positive). The rivalry characteristic implies that the same unit of the good cannot be collectively consumed. Private good is thus divisible while public goods are non-divisible. One example of private goods is alcohol, which is a demerit good. They have characteristics of rivalry in consumption such that, when consumed by one person, it will reduce the amount of supply left available to others. Another example of private good is education, which is a merit good, in which upon consumption by one student, will result in another place in the school being taken up and less available to others.
However, although merit and demerit goods belong to the same category of private goods, they differ from each other in a few ways. Merit goods are goods and services that the government considers socially desirable while demerit goods are considered socially undesirable.
Merit goods give rise to positive externalities while demerit goods give rise to negative externalities. For example, a person who is educated will be able to contribute to the economy by working in the knowledge-based sector, thus, generating more employment for others who did not receive the same education as he did, this will in turn generate higher income for those who did not receive as much education. Demerit goods like cigarettes, on the other hand, give rise to negative externalities. A person who is in a smoking environment will take in passive smoke although he is not smoking. This will lead to the non-consumer having health problems after breathing in the polluted air and incurring medical costs in treatment.
In conclusion, although merit goods and demerit goods share some similarities as as private goods and have different characteristics to public goods, they also have differences between them.
*****
This essay is modified from Alson Mar's (0734) assignment. Take note of how the different characteristics were linked together (in paragraph 2 & 4) to give a more wholesome picture to the topic. The examples were also well-illustrated (not just a mere listing of examples). Take note of these 2 important points as they are missing from most of your assignments.
One characteristic that make merit and demerit goods is the non-excludability in consumption. Merit and demerit goods which are private goods are excludable, while public goods are non-excludable. It means that once a public good is produced, it is available to all members of the community, irrespective of whether the individuals pay for it or not. Consumers who do not pay for the good cannot be excluded from consuming the good. This will result in the "free-rider" problem, in that, consumers will not want to pay to consume the good as they know that it is impossible for firms to exclude them in the consumption of the good. The result of this would mean that no private firms would want toundertake produciton of such goods as it is impossible to charge the consumers for the good on the basis of how much they use. The goods would thus be non-marketable. An example of a public good is national defence. Once defence is provided for the country, everyone in the country benefits from it, even the non-paying consumers such as students and tourists who do not pay taxes.
On the other hand, private goods such as healthcare is a merit good, is excludable in consumption such that non one can consume the good without paying for it. There will not be any "free-rider" problem and firms will want to undertake production of such goods as it is possible to charge the consumers for the good on the basis of how much they use. The goods would thus be marketable. Demerit goods such as cigarettes also have the characteristic of excludability in consumption and they are also marketable and do not have any "free-rider" problem.
Another main difference between private and public good is rivalry in consumption. For public goods such as street lights, they are non-rival in consumption such that the consumption of the good does not reduce the total supply available to others. For example, street lighting, upon consumption by one person, does not become less available to others. This is because there is no extra cost incurred by providing for another person's consumption (i.e. marginal cost is zero). Merit and demerit goods on the other hand are rival in consumption such that upon consumption by one person, would mean that it is less available to others. There is a cost incurred by the producer for the provision of an extra unit of the product (i.e. marginal cost is positive). The rivalry characteristic implies that the same unit of the good cannot be collectively consumed. Private good is thus divisible while public goods are non-divisible. One example of private goods is alcohol, which is a demerit good. They have characteristics of rivalry in consumption such that, when consumed by one person, it will reduce the amount of supply left available to others. Another example of private good is education, which is a merit good, in which upon consumption by one student, will result in another place in the school being taken up and less available to others.
However, although merit and demerit goods belong to the same category of private goods, they differ from each other in a few ways. Merit goods are goods and services that the government considers socially desirable while demerit goods are considered socially undesirable.
Merit goods give rise to positive externalities while demerit goods give rise to negative externalities. For example, a person who is educated will be able to contribute to the economy by working in the knowledge-based sector, thus, generating more employment for others who did not receive the same education as he did, this will in turn generate higher income for those who did not receive as much education. Demerit goods like cigarettes, on the other hand, give rise to negative externalities. A person who is in a smoking environment will take in passive smoke although he is not smoking. This will lead to the non-consumer having health problems after breathing in the polluted air and incurring medical costs in treatment.
In conclusion, although merit goods and demerit goods share some similarities as as private goods and have different characteristics to public goods, they also have differences between them.
*****
This essay is modified from Alson Mar's (0734) assignment. Take note of how the different characteristics were linked together (in paragraph 2 & 4) to give a more wholesome picture to the topic. The examples were also well-illustrated (not just a mere listing of examples). Take note of these 2 important points as they are missing from most of your assignments.
Saturday 25 August 2007
Checklist for Market Failure
1) Do you know how people make decisions?
2) Do you know what it means by allocative efficiency?
3) Do you know the 4 main causes of market failure?
4a) Are you able to define these terms: private cost, private benefit, external cost, external benefit, public good, merit good, demerit good?
b) Are you able to give an example for each of the above term?
5a) Do you know what characteristics a public good has?
b) Do you know what each characteristic mean?
c) Can you give an example to illustrate each characteristic?
d) Are you able to explain why the government needs to provide public goods?
6a) Can you give examples of merit and demerit goods?
b) Are you able to explain why the government needs to intervene with regards to these goods?
7) Are you able to use diagrams to illustrate two cases where there's external cost and where there's external benefit?
8) Do you know the different steps to conducting CBA?
9) Do you know why the government wants to correct market failure?
10a) Do you know the different ways the government can deal with the problem of imperfect information?
b) Are you able to give examples?
11a) Do you know how the government can control monopoly power?
b) Are you able to give examples?
12a) Do you know how the government can control externalities?
b) Are you able to explain how they work?
c) Are you able to give examples?
13a) Do you know why income inequality is a problem?
b) Do you know how the government can intervene to solve it?
Well, 13 main points and you're quite there.
2) Do you know what it means by allocative efficiency?
3) Do you know the 4 main causes of market failure?
4a) Are you able to define these terms: private cost, private benefit, external cost, external benefit, public good, merit good, demerit good?
b) Are you able to give an example for each of the above term?
5a) Do you know what characteristics a public good has?
b) Do you know what each characteristic mean?
c) Can you give an example to illustrate each characteristic?
d) Are you able to explain why the government needs to provide public goods?
6a) Can you give examples of merit and demerit goods?
b) Are you able to explain why the government needs to intervene with regards to these goods?
7) Are you able to use diagrams to illustrate two cases where there's external cost and where there's external benefit?
8) Do you know the different steps to conducting CBA?
9) Do you know why the government wants to correct market failure?
10a) Do you know the different ways the government can deal with the problem of imperfect information?
b) Are you able to give examples?
11a) Do you know how the government can control monopoly power?
b) Are you able to give examples?
12a) Do you know how the government can control externalities?
b) Are you able to explain how they work?
c) Are you able to give examples?
13a) Do you know why income inequality is a problem?
b) Do you know how the government can intervene to solve it?
Well, 13 main points and you're quite there.
Friday 24 August 2007
Market structure Section 3 Q3(b)
Hi folks,
Many people had feedbacked that you'll want to read model essays. To be honest, such resources are unavailable. Therefore, the only way for you to read sample essays is if I write them myselves.
Thank goodness I actually enjoy writing essay.
I will try to explain a few techniques in essay writing as I go along writing it. For this entry, I'll be taking the Q3b as an example.
***********
Using examples from your country, consider whether monopolistic competition or oligopoly is the preferred form of market structure.
Firstly, before we start doing any essay, read the question a few times (3 times for me, 5 times for you :p).
Step 2, understand the implication of the question (What does it mean by "preferred"?), think through the concepts to apply (characteristics of oligopoly and MC).
Then, break down the question into different parts. In this case, the part a of the question can be divided into:
1) How does Oligopoly benefit producers or consumers more than MC?
2) How does MC benefit producers or consumers more than Oligopoly?
Take note that the question also asked specifically for "examples from your own country", in other words, you have to take great care to select good examples to illustrate your points.
Thereafter, plan your essay.
For every essay, the structure should look (more or less) like this:
1) Intro
i) Definitions of keywords
ii) Describe the issue that the question wants you to discuss (Why are they even asking this question? What's the contention? Why is it worth discussing? What's interesting about this question?)
2) Body:
i) Topic sentence (a topic sentence should be at the start of each new point and reads like a direct response to the question)
ii) Elaboration and explanation
iii) Examples
iv) Conclusion for this topic sentence (the "link" back to the question. the "so?" to the question. this can be included if your elaboration, explanation and examples are not adequate to illustrate your point well enough)
3) Final conclusion
i) Give a stand (if the question require you to do so)
ii) Describe the trend that you saw from your answers (is there similarities/differences? comparison/trend in LR and SR?
iii) Give your evaluation (if required)
*******
The monopolistic competition and oligopoly are two market structures that are very realistic in today's society. A monopolistic competitive industry is characterized by the presence of many small firms, selling similar but slightly differentiated products that are close substitutes to one another. Examples of such industry in Singapore includes: bubble tea shops and neighbourhood hairdressing salons. An oligopoly is defined as an industry with a few large firms which may sell either identical or differentiated products. The telecommunications industry, for instance, is an example of an oligopolistic industry.
In this essay, I define "preferred" by "the benefits that the producers or consumers receive". As producers are concerned about profits, which can be increased by higher prices and higher quantity demanded (which leads to higher revenue) and lower costs and consumers are concerned about lower prices, better quality products (which requires higher cost on the part of producers) and wider variety of products, there seem to be a contention between what is preferred by the producers and what is preferred by the consumers. Therefore, it is interesting to take a look at which of these market structures can give the most benefits to both producers and consumers.
Firstly, the oligopoly is preferred due to its ability to earn supernormal profits. The oligopoly is characterized by its high barriers to entry. Factors that lead to the high barriers to entry include: high start-up cost, strict requirements for getting license, strong branding. Due to the high barriers to entry, supernormal profits earned by the industry cannot be easily competed away by new entrants into the industry. On the other hand, the firms in a monopolistic competition has low barriers to entry. This means that firms that are attracted by the supernormal profits earned by the industry can enter the industry easily to compete them away. Therefore, a monopolistic competitive firm is only able to earn normal profits in the long run. Thus, an oligopoly is preferred by the producers.
(*note that I didn't include any examples here because it is not easy to discuss supernormal profits with real examples)
Moreover, oligopolistic firms are preferred by consumers as they can plough the supernormal profits into Research and Development (R & D). The incentive to innovate will result in the production of better quality products, which will in turn benefit consumers. An example of this is Creative, a local oligopolistic firm, which sells IT products. It is able to innovate and market new products like the Zen mp3 player. The firm later also improved the gadget to having mp4 functions. Another example of an innovative local oligopolistic firm is Osim which sells health-enhancing equipment. The firm markets new products (uZap, iGallop, uPapa) very frequently due to its ability to invest in R & D. The ability to market new and better quality products makes the oligopoly preferred by the consumers.
The oligopoly is also preferred by both producers and consumers because of its ability of enjoy economies of scale. Economies of scale refers to the production process in which an increase in the scale of the firm results in a fall in the long run average cost (LRAC). Since an oligopoly is characterized by its large output, it is able to enjoy economies of scale, whereas a monopolistic competition, with its small output, is unable to do so. Examples of economies of scale includes: purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets).
As the oligopolistic firm reduces its LRAC, it is able to pass the cost-savings to the consumers as lower price, thus benefiting the consumers. This is beneficial for the firm as it keeps it competitive in the industry.
An example of a firm that is able to enjoy economies of scale and benefits its consumers is NTUC Fairprice hypermart. Its large size, compared to that of a provision shop in the neighbourhood, allows it to enjoy purchasing economies. It is able to receive larger discounts from its suppliers due to the ability to bulk buy. This cost savings allow NTUC Fairprice to have the ability to absorb the GST hike this year, which in turn, benefits the consumers.
However, it will unfair to say that it is always good to have large output in order to enjoy economies of scale. This is because, for the case of many monopolistic competitive firms, it is actually more cost efficient for them to stay small. This is so when the firm is only serving a small market.
For example, for a neighbourhood bakery, whose market consist only of the residents staying in its proximity, it is not cost efficient for it to increase its output. If it increase its production, the result will be that there will be a demand that is too low to take up the supply. Especially for the case of a bakery, products that are unsold in a day cannot be kept fresh for sale the next day and have to be discarded. This will result in wastage. Therefore, in the case where the market is small, monopolistic competition is preferred by the producers.
The monopolistic competition, characterized by many small firms can also be preferred by consumers as it is able to provide a wider variety and more unique products. For example, compare the jewelleries sold by an online shop (a monopolistic competitive firm) and those mass-produced by a jewellery shop (an oligopolistic firm), the online shop will provide more unique designs with wider variety too, as output is small. For products like jewelleries, clothes, shoes, where uniqueness and variety are preferred, the monopolistic competitive industry will be preferred by consumers.
The monopolistic competition is also preferred by consumers when it comes to the ability to provide personalized services. The neighbourhood hairdressing salons for instance, can allow you to bring pictures of hairstyle you want as reference to how you want to do your hair. They also are able to know their customers by name and remember their hair conditions and types to give personalized service to cater to individual customers each time they visit. For products where personalized service is preferred, a monopolistic competitive firm, with its smaller size, will be able to cater to it. Thus, it is preferred by consumers.
In conclusion, the preference of the two market structures is dependent on different factors. Although when it comes to efficiency and profits, the oligopoly is preferred, the size of the market and the type of product sold have to be considered as well. For a larger market, the oligopoly is preferred, whereas it is more cost efficient to operate at the monopolistic competitive level if the market is small. For products that are preferred to have wider variety or uniqueness or require personalized service, the monopolistic competition is preferred by consumers. But for products that do not need to be so (for example, telecommunications), the oligopoly with its higher efficiency is preferred.
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For this essay, according to those scripts that I've marked, I noticed that the common mistake is that of no examples. This is very grave for this question since they asked for it specifically. Another problem is that of no elaboration of examples ("An example is the bakeries in the neighbourhood area FULLSTOP". Like, huh? SO WHY is that an example?). The other problem (which seem to be a trend for most essays), is poor organization- main points are there but they jump all over the place and make the reader go around a maze.
Alritey, enough about my comments. Please take note that I'm doing 3b as a question on its own, with no regards to (a) at all. If (a) is taken into consideration, I probably wouldn't define "oligopoly" since i will already have be defined it in part a.
Also, feel free to give comments as to how helpful this is or whether there's still anything that is unclear. I will try my best to clarify. Just remember to leave your name and class after the comment :)
Oh, and as a practice, you may want to try this question: Explain why the oligopoly is more likely to collude than monopolistic competition. You may hand it in for me to take a look, but as for how fast or how detailed the marking will be, I really can't be sure, considering the large pile of scripts that just came in from your recent case study test *groanx* and the assignments that just came in due to late submission *double groanx*
Endnotes: I referred to wikipedia.org for quick access to definitions and Osim official website for the official names of equipment.
Many people had feedbacked that you'll want to read model essays. To be honest, such resources are unavailable. Therefore, the only way for you to read sample essays is if I write them myselves.
Thank goodness I actually enjoy writing essay.
I will try to explain a few techniques in essay writing as I go along writing it. For this entry, I'll be taking the Q3b as an example.
***********
Using examples from your country, consider whether monopolistic competition or oligopoly is the preferred form of market structure.
Firstly, before we start doing any essay, read the question a few times (3 times for me, 5 times for you :p).
Step 2, understand the implication of the question (What does it mean by "preferred"?), think through the concepts to apply (characteristics of oligopoly and MC).
Then, break down the question into different parts. In this case, the part a of the question can be divided into:
1) How does Oligopoly benefit producers or consumers more than MC?
2) How does MC benefit producers or consumers more than Oligopoly?
Take note that the question also asked specifically for "examples from your own country", in other words, you have to take great care to select good examples to illustrate your points.
Thereafter, plan your essay.
For every essay, the structure should look (more or less) like this:
1) Intro
i) Definitions of keywords
ii) Describe the issue that the question wants you to discuss (Why are they even asking this question? What's the contention? Why is it worth discussing? What's interesting about this question?)
2) Body:
i) Topic sentence (a topic sentence should be at the start of each new point and reads like a direct response to the question)
ii) Elaboration and explanation
iii) Examples
iv) Conclusion for this topic sentence (the "link" back to the question. the "so?" to the question. this can be included if your elaboration, explanation and examples are not adequate to illustrate your point well enough)
3) Final conclusion
i) Give a stand (if the question require you to do so)
ii) Describe the trend that you saw from your answers (is there similarities/differences? comparison/trend in LR and SR?
iii) Give your evaluation (if required)
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The monopolistic competition and oligopoly are two market structures that are very realistic in today's society. A monopolistic competitive industry is characterized by the presence of many small firms, selling similar but slightly differentiated products that are close substitutes to one another. Examples of such industry in Singapore includes: bubble tea shops and neighbourhood hairdressing salons. An oligopoly is defined as an industry with a few large firms which may sell either identical or differentiated products. The telecommunications industry, for instance, is an example of an oligopolistic industry.
In this essay, I define "preferred" by "the benefits that the producers or consumers receive". As producers are concerned about profits, which can be increased by higher prices and higher quantity demanded (which leads to higher revenue) and lower costs and consumers are concerned about lower prices, better quality products (which requires higher cost on the part of producers) and wider variety of products, there seem to be a contention between what is preferred by the producers and what is preferred by the consumers. Therefore, it is interesting to take a look at which of these market structures can give the most benefits to both producers and consumers.
Firstly, the oligopoly is preferred due to its ability to earn supernormal profits. The oligopoly is characterized by its high barriers to entry. Factors that lead to the high barriers to entry include: high start-up cost, strict requirements for getting license, strong branding. Due to the high barriers to entry, supernormal profits earned by the industry cannot be easily competed away by new entrants into the industry. On the other hand, the firms in a monopolistic competition has low barriers to entry. This means that firms that are attracted by the supernormal profits earned by the industry can enter the industry easily to compete them away. Therefore, a monopolistic competitive firm is only able to earn normal profits in the long run. Thus, an oligopoly is preferred by the producers.
(*note that I didn't include any examples here because it is not easy to discuss supernormal profits with real examples)
Moreover, oligopolistic firms are preferred by consumers as they can plough the supernormal profits into Research and Development (R & D). The incentive to innovate will result in the production of better quality products, which will in turn benefit consumers. An example of this is Creative, a local oligopolistic firm, which sells IT products. It is able to innovate and market new products like the Zen mp3 player. The firm later also improved the gadget to having mp4 functions. Another example of an innovative local oligopolistic firm is Osim which sells health-enhancing equipment. The firm markets new products (uZap, iGallop, uPapa) very frequently due to its ability to invest in R & D. The ability to market new and better quality products makes the oligopoly preferred by the consumers.
The oligopoly is also preferred by both producers and consumers because of its ability of enjoy economies of scale. Economies of scale refers to the production process in which an increase in the scale of the firm results in a fall in the long run average cost (LRAC). Since an oligopoly is characterized by its large output, it is able to enjoy economies of scale, whereas a monopolistic competition, with its small output, is unable to do so. Examples of economies of scale includes: purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), marketing (spreading the cost of advertising over a greater range of output in media markets).
As the oligopolistic firm reduces its LRAC, it is able to pass the cost-savings to the consumers as lower price, thus benefiting the consumers. This is beneficial for the firm as it keeps it competitive in the industry.
An example of a firm that is able to enjoy economies of scale and benefits its consumers is NTUC Fairprice hypermart. Its large size, compared to that of a provision shop in the neighbourhood, allows it to enjoy purchasing economies. It is able to receive larger discounts from its suppliers due to the ability to bulk buy. This cost savings allow NTUC Fairprice to have the ability to absorb the GST hike this year, which in turn, benefits the consumers.
However, it will unfair to say that it is always good to have large output in order to enjoy economies of scale. This is because, for the case of many monopolistic competitive firms, it is actually more cost efficient for them to stay small. This is so when the firm is only serving a small market.
For example, for a neighbourhood bakery, whose market consist only of the residents staying in its proximity, it is not cost efficient for it to increase its output. If it increase its production, the result will be that there will be a demand that is too low to take up the supply. Especially for the case of a bakery, products that are unsold in a day cannot be kept fresh for sale the next day and have to be discarded. This will result in wastage. Therefore, in the case where the market is small, monopolistic competition is preferred by the producers.
The monopolistic competition, characterized by many small firms can also be preferred by consumers as it is able to provide a wider variety and more unique products. For example, compare the jewelleries sold by an online shop (a monopolistic competitive firm) and those mass-produced by a jewellery shop (an oligopolistic firm), the online shop will provide more unique designs with wider variety too, as output is small. For products like jewelleries, clothes, shoes, where uniqueness and variety are preferred, the monopolistic competitive industry will be preferred by consumers.
The monopolistic competition is also preferred by consumers when it comes to the ability to provide personalized services. The neighbourhood hairdressing salons for instance, can allow you to bring pictures of hairstyle you want as reference to how you want to do your hair. They also are able to know their customers by name and remember their hair conditions and types to give personalized service to cater to individual customers each time they visit. For products where personalized service is preferred, a monopolistic competitive firm, with its smaller size, will be able to cater to it. Thus, it is preferred by consumers.
In conclusion, the preference of the two market structures is dependent on different factors. Although when it comes to efficiency and profits, the oligopoly is preferred, the size of the market and the type of product sold have to be considered as well. For a larger market, the oligopoly is preferred, whereas it is more cost efficient to operate at the monopolistic competitive level if the market is small. For products that are preferred to have wider variety or uniqueness or require personalized service, the monopolistic competition is preferred by consumers. But for products that do not need to be so (for example, telecommunications), the oligopoly with its higher efficiency is preferred.
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For this essay, according to those scripts that I've marked, I noticed that the common mistake is that of no examples. This is very grave for this question since they asked for it specifically. Another problem is that of no elaboration of examples ("An example is the bakeries in the neighbourhood area FULLSTOP". Like, huh? SO WHY is that an example?). The other problem (which seem to be a trend for most essays), is poor organization- main points are there but they jump all over the place and make the reader go around a maze.
Alritey, enough about my comments. Please take note that I'm doing 3b as a question on its own, with no regards to (a) at all. If (a) is taken into consideration, I probably wouldn't define "oligopoly" since i will already have be defined it in part a.
Also, feel free to give comments as to how helpful this is or whether there's still anything that is unclear. I will try my best to clarify. Just remember to leave your name and class after the comment :)
Oh, and as a practice, you may want to try this question: Explain why the oligopoly is more likely to collude than monopolistic competition. You may hand it in for me to take a look, but as for how fast or how detailed the marking will be, I really can't be sure, considering the large pile of scripts that just came in from your recent case study test *groanx* and the assignments that just came in due to late submission *double groanx*
Endnotes: I referred to wikipedia.org for quick access to definitions and Osim official website for the official names of equipment.
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