Paul Blacklow on types of competition

In my ECONS101 lecture this morning, we covered market structures. In a weird coincidence, this new article on The Conversation by Paul Blacklow (University of Tasmania) was published today, also on market structures. As Blacklow notes, there are four main market structures:

In the most ideal, a perfectly competitive market, firms must use resources efficiently to produce what we consumers want at the lowest possible cost...

At the opposite extreme, in monopoly markets, there is only one seller of a good or service. Typically, there is some barrier preventing new firms from entering the market and driving prices down...

More common than monopoly is what’s called monopolistic competition, which is the market structure for many of our tech, entertainment and dining goods and services...

In Australia, many key goods and services are traded in oligopoly markets.

Oligopolies arise when a few large firms dominate a particular industry, such as supermarkets, domestic airlines, banking, mobile telecommunications, and petrol retailing.

I like Blacklow's description of the market structures, which is not dissimilar to how I describe them in class. If you are interested in learning more, I encourage you to read the article. However, in my view there are a couple of additional points to note, in relation to monopolistic competition.

First, monopolistic competition is actually more common than Blacklow suggests. He uses the examples of tech, entertainment, and dining, but the range of markets in which there is monopolistic competition is much broader than that. Monopolistic competition involves firms selling products that are differentiated from the similar products being offered by other sellers. When it comes to most of the goods that we buy, sellers are trying to differentiate themselves from their competitors who are selling goods that are otherwise very similar. As I see it, most markets are either an oligopoly (like supermarkets) or monopolistic competition (like service stations). [*]

Second, Blacklow focuses on firms differentiating their product by advertising, or research and development. Most differentiation is actually enacted through branding (which is not quite the same as advertising). [**] By branding their products, a firm can make their offering seem different to those of their competitors. For example, service stations are selling the same product (fuel), but differentiate themselves through their brand. Firms can also differentiate themselves spatially, by the location of their stores. Service stations do this as well. The make their offering different from their competitors because the location of their service stations are different. And, firms can also differentiate themselves through the range of products that they sell. Again, service stations provide a good example. Some have a minimal, convenience store range of products in-store. Others have a more upmarket cafe offering. So, there are many ways that firms can differentiate themselves from their competition, and once you realise this, you start to notice just how common monopolistic competition is.

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[*] There isn't really a stark distinction between an oligopolistic market and a monopolistically competitive market. Some more realistically, most markets are actually in some uncomfortable space in-between these two market structures. They may even change over time, sometimes being more oligopolistic, and sometimes more monopolistically competitive.

[**] Yes, a firm would advertise its brand as a way of differentiating its product. However, that is not the only purpose of advertising - it also changes consumer preferences, as I noted in this post from several years ago.