Compare and contrast the four degrees
of competition in a private enterprise system.
Answer: The four degrees of competition include
perfect competition, monopolistic competition, oligopoly, and monopoly. In
perfect competition, all firms in an industry are small but the number of firms
in the industry is large. No single firm is powerful enough to influence price;
therefore, price is determined by such market forces as supply and demand. The
products in a perfectly competitive market are so similar that buyers view them
as identical to those of other firms. In monopolistic competition, there are
many buyers and sellers. Often, sellers attempt to differentiate their products
and services from others through design, styling, advertising, or the use of
brand names; this often gives sellers some control over prices.
Monopolistically competitive businesses face few market entry/exit barriers. In
an oligopoly, an industry has only a handful of sellers, who are generally
quite large. Market entry is difficult because large capital outlays are needed
for new start-ups. In an oligopoly, the actions of one firm tend to affect the
actions of all firms; for example, when one firm changes price, all firms tend
to change price rather quickly. A monopoly exists when an industry or market
has only one producer that dominates the entire market. Though monopolies are
illegal in the U.S., natural monopoliessuch as utilities companiesare
government-regulated; they are allowed to exist since one such company can
often efficiently supply all needed goods or services.
Source: Business Essentials, 8e (Ebert/Griffin)
– Global Edition
