U.S. Business System & Environment | Four Degrees of Competition in a Private Enterprise System

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 monopoliessuch as utilities companiesare 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