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"Oligopoly is the most appropriate economic model of market structures that can best explain the behavior of companies in Singapore." Discuss. [25]


There are four models of market structure, namely, perfect competition, monopolistic competition, oligopoly and monopoly. In a perfect competition market, many sellers sell a homogeneous product to many buyers. In a monopolistic competitive market, many sellers sell slightly differentiated products to many buyers. A monopoly refers to a market which has only one seller of a unique product without close substitutes. An oligopoly is a firm that has several rivals, selling either a differentiated or homogeneous product, and with high barriers to entry. Firms of different industries belong to different market structures because of their different products and conditions, and different market structures have different assumptions. This essay attempts to explain the behavior of firms in Singapore according to different market structures and conclude whether oligopoly is the most appropriate model of market structure to explain the behavior of firms in Singapore.
As oligopolistic firms are always rivals to each other and have significant market share in which they jostle and engage other rivals, there will be non-price and price competitions among the few firms in an oligopolistic market. It can be argued that non-price competition includes engagement in research and development and advertising. In the long run, oligopolistic firms usually gain supernormal profits hence they have the ability and the willingness to innovate and differentiate their products from the rest further more.

Oligopolistic firms also involve in advertising. Advertising increases the demand for a product and makes it more price elastic. This enables a firm to charge higher prices but yet sell more output, thus raising its total revenue. A firm decides to advertise if it believes that the additional revenue earned will exceed the advertising expenditure incurred, thereby raising profits. Oligopolistic firms often advertise and innovate to compete effectively for survival. 
Advertising can be seen as either being informative or persuasive in nature. Informative advertising informs the consumers about the characteristics of the product while persuasive advertising aims to create brand awareness and loyalty by creating a certain image of the company of the type of consumers that the product is targeted at. Oligopolistic firms usually implement persuasive advertising. They tend to engage in more costly forms of advertisements, like having celebrity endorsements, placing large and prominent advertisements on billboards, newspapers, popular magazines and websites and advertising frequently on television. This is because they have very large output to spread out such high advertising costs unlike monopolistic competitive firms, which have considerably lower levels of output. In Singapore, firms which are oligopolistic also set up many advertisements to attract consumers and create loyalty. For example, famous brands that operate in Singapore such as L’OREAL, VISA or Ricola, always have advertisements showing before movies in the cinema. These advertisements are usually very costly due to the fact that every audience has to watch them and the advertising effects are great.
There is also price competition between oligopolistic firms, which can often be observed in reality in Singapore. Anti-competitive pricing, for example, limit pricing or predatory pricing manage to deter the entrance of potential firms or undercut existing rivals in oligopolistic markets. In addition, the high possibility of price wars also raises barriers to entry. Therefore, only few large firms remains in several industry groups in Singapore. For instance, the fast food industry, Mcdonalds , KFC and Subways are the oligopolies. 
However, there are alternative models of market structure to explain the behavior of firms in Singapore. For instance, monopolistic competition, which has four assumptions. There are large number of buyers and sellers, low barriers to entry, differentiated products and imperfect information. As individual firm’s action has no impact on its competitors and it is thus able to make independent price and output decisions. Monopolistic competitive firms, such as restaurants (Ding Tai Fung) in Singapore, hair salons (Kimage) in Singapore, and so on, sell differentiated products. This means that the products sold by one firm are similar but not identical to those sold by its competitors. Product differentiation can be real or imaginary. Due to product differentiation, a monopolistic competitive firm has some degree of market power. A monopolistic competitive firm is able to charge more than its competitors without necessarily losing all its customers because there are some customers who would still prefer its products as it better suits their preferences. 

In the long run, monopolistic competitive firms gain normal profits due to free or low barriers to entry or leaving of the market. Hence they have much lower willingness and ability to do research and development or advertise compared with oligopolistic firms. The price competition among monopolistic competitive firms is very low. They set prices independently of other firms. There is no reason to undercut competitors or engage in price wars as impact on other firms is insignificant. In Singapore, many firms are monopolistic competitive firms. For example, all the food stalls in the food courts in Singapore are monopolistic competitive firms, just as are hawker food stalls in Singapore. This is because they sell differentiated food from each other and they set their own prices. To open a small food store is not difficult or expensive. There are many food stores in Singapore and many people having their meals at these stores.

In Singapore, the national train company SMRT can be treated as a monopoly in train service industry because it takes a large proportion of the routes. A monopoly of train service, there is no price competition because SMRT is the price setter. If people want to take the train, they generally have to choose SMRT without any close substitutes. The high startup costs and running costs deter other companies from entering the train market. Hence there is no need for SMRT to use predatory pricing or limit pricing. In the long run, a monopoly gains supernormal profits. Hence, it has the ability to innovate and do research and development although it has no need to do so. SMRT can do that for increasing profits but not for survival. However, it has to in Singapore because if it cannot provide better and safer services, the government may choose to change it to other firms. 

In conclusion, oligopoly, monopolistic competition and monopoly can be used as models of market structure to explain the behavior of firms in Singapore, while clearly the idealistic model of perfect competition is always not present in the real world. In my opinion, among the three economic models, oligopoly may not be the most appropriate model because there are more small firms present in Singapore, which are monopolistic competitive firms. Different industries have different conditions hence firms may behave differently. People cannot predict that one model of market structure can explain everything. To conclude, oligopoly is an important and quite appropriate model of market structures only in some contexts and for some firms in Singapore, but not all.

JC Economics Essays - H2, H3 economics essays - tutor's comments: The essay answer addressed the requirements of the question quite well, but in an actual economics essay examination there should be appropriate, relevant, and useful economic diagrams. This is important - diagrams are important in economics and should be used whenever appropriate. What economics diagrams could have been used here? Note that when it comes to "A" levels or even undergraduate economics, economic concepts and ideas can be expressed in words, diagrams, or mathematics (which some say is a language). Therefore, for economics essays it is best to be fluent in words and diagrams/ graphs/ picture representations (for economic pictures, think of the "circular flow of income"). Also, think of the usual questions posed: how could this economics essay have been better written? Perhaps it could have benefited from more relevant and real world examples, or perhaps the examples could have been better explained in the context of the economic models? Having said that, this economics essay was answered under examination conditions, and is therefore quite high quality, well crafted, and well thought out with the required depth and range of economic ideas and concepts given a time constraint. Time management is very important in dealing with economics questions. What else do you notice about this economics essay answer? How would yours be similar, and how would yours be different? Special thanks to the contributors. 

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