ECONOMICS

Forces Analysis of Competitive Structure with the S-C-P (structure-conduct-performance) Models of Perfect Competition, Monopoly and Oligopoly



Forces Analysis of Competitive Structure with the S-C-P (structure-conduct-performance) Models of Perfect Competition, Monopoly and Oligopoly

Introduction

Today, the need for economic knowledge is very high at all levels - from the state to various market institutions, from the legislative to the executive management from the experts to the students. In the circumstances we all become bit economists, because, as George Bernard Shaw quipped, the economy - is the ability to enjoy life the best way (Say, 2003, 14). Human desire to unravel the secrets of economic processes is explained not only his eternal thirst for self-knowledge, but also the practical needs of the regulation of economic life. In this paper we are going compare and contras five forces of competitive structure with structure conduct performance model of oligopoly, monopoly, and perfect competition by differentiating between perfect competition, monopoly, and oligopoly.

Compare and Contrast

Porter's 5 Forces Model

Structure of an industry and the ability of firms to act strategically depend on the relative strengths of five forces (Porter, 2008, 85):

Current competition

Potential competition

Threat of substitute products

Power of buyers

Power of suppliers

Current Competition

Competition can be determined by the 4 types of markets discussed before

BUT, according to Porter's Model, firms may change the structure of the industry

Firms in highly competitive markets may dislike their lack of power over various factors and try to change the situation, which will change the level of competition

Potential Competition

Degree of potential competition depends upon the existence and height of barriers to entry and exit

Natural monopolies - industries where competition would be wasteful (like public utilities)

Economies of scale - cost benefits associated with large operations

Threat of Substitute Products

If there are no substitutes, producer of the good will face little competition and have high market power

Firms often differentiate to reduce the threat of substitute goods

Power of Buyers

Monopsony - market where there is only one buyer, and the buyer has the market power not the seller (example: coal industry)

The existence of strong buyers and weak sellers may benefit the market, or it could lead to higher seller concentration as sellers come together to counteract buyer power

The existence of strong sellers and weak buyers may result in consumer rights groups forming to protect buyers

Power of Suppliers

Where there are few suppliers, supplier power will be high (can affect producers costs)

The decision of whether to produce components needed in the production process ...