PetroVietnam Positive And Negative Objectives Of Monopoly

Currently, in many countries around the world, monopoly in the business still has debatement and it is applied in some fields. Therefore, there will be two exclusive aspects: positive and negative when applied in the business methods of a certain field. The main points lead to monopoly are Government concessions resources for a certain firm, the ownership of inventions, patents and intellectual property, ownership is a great resource.

+ Positive objective :

As a result, we can analyse the positive outlook base on Viet Nam Oil And Gas Group (Petrovietnam) – one of the most popular corporation in Viet Nam since 1985 till now. Petrovietnam has supposed as a powerful economic group in Vietnam, known in the region and the world.

In this situation, the profits that Petrovietnam earn to provide funds that can be invested in equipment and development. Whereas perfect competition must be accepted with a normal return on invested capital, monopolist has more funds to undertake the development futher. Importantly, the ability to achieve a monopoly position or to maintain it and step ahead of potential competitors, Petrovietnam has to do innovation in products, techniques and cost savings. They also may not need to spend more money in advertising, marketing, promotions, etc. Similarly, PetroVietnam will know more about specific needs for their products and provide for market easily. As they said “PV Oil wants to compete with other regional and global players in the downstream business,” the statement said. Downstream is a term used in the oil industry to describe the refining, sale and distribution of petroleum products. [1] 

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+ Negative objective :

Due to maximize revenue, monopolist would produce goods which marginal sales equals marginal revenue instead of producing output level which prices higher than marginal cost as in the market (supply equals demand). Besides, different from perfect competition which price depends on quantity of producing of a firm. Price of Petrovietnam would increase while decreasing quantity of producing. For this reason, profit margins will be higher than selling price. Besides, producing more oil products will make enterprise gets more revenue and it also will be higher selling price. In Viet Nam, if you want to open a petrol station, you have to sign the contract to Petrovietnam and it will be under the influence of Petro, but getting profit of doing business oil and gas is a large number.

Accordingly, sometimes Petrovietnam suddenly increase the price higher while international market price was decreasing and the market did not change. Thus, people have to buy oil and gas with an expensive price because oil and gas are important in life. Although people complained, Petrovietnam still keep price high. In this case, we can see easily that they misused power of monopolist sometimes. In short, monopolist will produce lower and price of selling goods is higher than competitive market. In addition, society has to bear loss by increased output minus marginal total cost to produce output which should be produced more. It is the toll by monopolist. In addition, lack of incentive to innovate also impact the demand and supply.

PART III

MONOPOLISTIC COMPETITION

Assumptions

Monopolistic competition means each company has monopolistic products, where there are quite a large number of companies operating independently of each other and unrestricted free entry to the industry. It unlike the perfect competition, each company produces or provides a product in different ways from its rivals. Therefore, they can raise their price without losing customers.

Equilibrium of the firm

In the short run, the companies can earn supernormal profits because when a company produces a monopolistic product (product differentiation); customers want to buy it so the demand curve will be rising. Therefore, the company will pull the price goes up. Example: Apple Company produced iPad, the original price is $700 but when a lot of customers want to buy it, Apple Company raised the price to $800, customers still buy it.

In the long run, if the price still goes up, the demand of customers will goes down. It depends on salary and the products of rivals. If a company is continue producing the products, the demand curve will touches the average cost curve, which means they will not get supernormal profits. Example: salaries of customers are not changing but the price of iPad is still going up, they will not buy it. Nevertheless, if the price of iPad is going up, Samsung produces a new good quality cheaper product, customers will buy Samsung’s product.

Non-price competition

Companies under monopolistic competition can engage in non-price competition, which are product development and advertising. Product development means produce a product that sell it well and it is different from rivals’ products. Example: Big C supermarket in Vietnam has 13 branches; it opens at 8:00AM – 22:00PM, they do not have many promotions to customers. Coop-Mart supermarket in Vietnam has over 20 branches, it opens at 6:00AM – 22:00PM, and they have so many promotions to customers, especially for VIPs and Members of Coop-Mart. Therefore, customers like shopping in Coop-Mart than Big C. Advertising means companies advertise their products to sell it, advertising is not only introduce people to the product’s existence and availability, but companies try to persuade customers to purchase it. Successful advertising and product development will increase demand and make demand curve less elastic. Example: KFC advertises their products such as fire chickens, potatoes and hamburgers on TV, and they also free delivered for whom cannot go to the store, so people know their products and buy it. Lotteria does not advertise their products, so people do not know it and they will lose customers.

Monopolistic competition and the public interest

Monopolistic competition has different kind of products and less allocation of

resources than perfect competition, so it less will be sold and higher price than perfect

competition and companies will not be producing at the least-cost point. Nevertheless, it is the advantages for customers because they can buy a good quality product and the product will be improving its quality. In perfect competition, the price is cheaper than monopolistic competition, it does not change, same quality product and homogeneous products but the products will not be improved. Example: In perfectly competitive markets, they sell vegetables or fruits, but the price will not be changing. However, in monopolistically competitive restaurants, they serve food, fruits, vegetables and drinks, they can change the price goes up or goes down.

Monopolistic competition can keep prices down for customers and encourage cost saving. Disadvantage of monopoly is only one kind of product, but the advantages are the price is cheaper than monopolistic, achieve greater economies of scale and have more funds for investment, research, improvement and development. Example: In monopolistically competitive of Samsung Company, they sell electronics such as TVs, cell-phones, digital cameras, MP3 players, etc., they can change the price goes up or goes down. In monopoly competition such as Medicine Company, its only produce medicines but its can change the price.

PART IV

OLIGOPOLY

Oligopoly where there are only a few firms & when entry of new firms is restricted.

The two key features of oligopoly: they have differences between oligopolies, that are two crucial features that distungish oligopolies. Those are barriers to entry and interdependence of the firms.

Barriers to entry: besides the firms under monopolistic competition, there are various barriers to the entry of new firms. These are similar to those under monopoly. In some cases entry is relatively easy, whereas in others it’s virtually impossible.

Interdependence of the firms: one of the two key features of oligopoly. Each firm will be affected by its rivals’ decisions. Likewise its decisions will affect its rivals. Firms recognise this interdependence. This recognition will affect their decisions.

Competition and conclusion: oligopolies are pulled in two different directions:

+ The interdependence of firms may make them wish to collude with each other.

+ On the other hand, they will be tempted to compete with their rivals to gain a bigger share of industry profits for themselves.

Collusive oligopoly: where oligopolies agrees to limit competition between them. They may set output quotas, fix prices, limit product promotion or development.

Non- collusive oligopoly: where oligopolies have no agreement between themselves, formal, informal or tacit.

CONCLUSION

In this case, we have learnt about four market structures and how they operate in business. Besides, inside each part, it showed clearly the definition and giving explanation for us who are doing business or study about economic because this part is very important.

There are 4 market structures that exist in the economy. Although all 4 market structures are different about structures and functions, they all form the economies. These market structures still have some limitation but beside that, they can make the firms competed each other and therefore, develop the economy. The competitions in business are always harsh even you know how to do well.