Posted: April 2nd, 2015

Market Forms and Increased Competition

Market Forms and Increased Competition

Introduction

In economics, market forms refer to the number of firms producing identical or similar goods and services. It is at times referred to as market structure. According to Nickell and Stephen (1996), increased competition in the market makes firms to become more productive and aggressive. On the other hand, competition is a state or situation in which different individuals and firms are striving to have a greater share of the market in order to either sell or buy goods and services with the aim of maximizing profits.

Forms of Markets

There are various forms of markets. Monopolistic competition; this involves quite a number of firms, each having a market share and involved in production of slightly different types of goods and services. Oligopoly is a market situation in which a few firms dominate and control the market. Oligopsony is whereby sellers or service providers are available but only meets a few buyers. Monopoly involves only one firm or producer involved in the production of goods and services. Natural monopoly is where the economies of scale favors the growth of the firm due to reduced costs of production and finally perfect competition is where by there are no limits for entry into the market of producers and consumers (Hill, 2005).

Effects of Competition

Cooper (1994) says that competition is very healthy and results in the provision of high quality goods and services. For instance, in a hospital setting, oligopoly competition that was practiced some years ago by public hospitals resulted in underutilization of technology and provision of low quality services to the masses seeking health care. As a result, private hospitals and other related institutions arose. This brought about competition for health facilities, patients, personnel, physicians, financial resources and public support. This is of benefit to the public but it comes at a cost. It is, therefore, right to assert that competition system comes with both threats and opportunities. Emergence of private hospitals where health care is of high quality has led to many public employees shifting to the greener pastures as private institutions pay well compared to public ones. This results in decline in occupancy rates and personnel shortages as public hospitals attend to a large number of common people who cannot afford private hospitals (Baumol & Blinder, 2008). Therefore, it is not really true that competition between organizations and in particular those involved in health care would increase efficiency in the allocation of resources.

Field (1989) asserts that in a market situation whereby the buyers and sellers are unequally informed, competition in such a scenario does not necessarily lead to efficiency. In general, competition is a basis of strong and effective markets. It enables consumers get good deals, encourages innovations to win customers and reduce costs of incentives for efficient organization operations. It also propels economic growth of a country, leads to price reduction, leads to greater availability variety of products to choose from and provision of better services to consumers hence giving customers the opportunity to make informed choices.

On the other hand, vigorous competition in monopolistic and perfect competition market results in price reduction on commodities and services. This creates advantage to consumers, but in such cases, the commodity produced are substandard or of low quality (Mankiw, 2012). The aim here is to reduce the cost of production and attract more customers through price lowering.

Conclusion

In conclusion, it is not necessarily that competition in a market creates incentives to use resources efficiently and increase the quality of services provided. It might lead to production of high quality goods and services but in other cases the reverse is true. As a result of high costs of production and striving to attract and retain customers, most firms and producers start producing low quality goods and services at a lower cost. Some of these goods and services might have adverse effects to human beings and the environment in general.