Posted: March 13th, 2023

Using the oligopoly and perfect competition models, analyse why the effects of the Covid-19 pandemic on the two markets differ

The Covid-19 pandemic has had a significant impact on both perfect competition and oligopoly markets. The effects of the pandemic have been different in each market, with one market experiencing an increase in profits while the other has experienced little change to their welfare levels. This paper will explore why the effects of the Covid-19 pandemic on these two markets differ by using the perfect competition model and the oligopoly model.

In a perfectly competitive market, firms are price takers as they cannot influence price due to industry demand being spread among many producers (Garbade 2020). As a result of this, most firms experience similar outcomes during times of economic downturns such as those caused by Covid-19: these firms are likely to experience decreases in production or sales volume because consumers have reduced spending power and so there is less demand for their goods and services (Economics Help n.d.).

Contrastingly, in an oligopolistic market there are fewer competitors that may be able to control prices due to their large portion of industry production (Garbade 2020). In response to changing economic conditions, businesses operating within an oligopoly may engage in “price gouging” which involves increasing prices above what would normally be charged during non-crisis periods (Rosenberg n.d.). During times like those brought about by Covid-19, this strategy allows companies involved in an oligopoly to maintain profits while also providing a source of income for workers employed by them – albeit at higher than usual prices.

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Using the oligopoly and perfect competition models, analyse why the effects of the Covid-19 pandemic on the two markets differ

An example where we can witness this difference between perfect competition and oligopoly markets is within disposable glove producers during the current crisis. Disposable glove makers operate within an oligopolistic environment where only some large companies hold considerable amounts of industry output power (Forbes 2021). These organisations were quick to respond when increased safety protocols were implemented worldwide at the start of the pandemic throughout April 2020; they struck deals with clients based on stock availability rather than cost which allowed them take advantage from shortages created by rising demand for gloves across industries such as healthcare, retail etc.. (Marwah 2019). By doing so these companies managed not only maintain profitability but also keep wages for employees steady; instead any extra profit generated was used instead capitalise through expansion or stockpiling raw materials amongst other strategies(Banerjee & Singh 2021) .

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On comparison it can clearly be seen that unlike its rival firm that operates under perfect competition ,such specialised strategies undertaken by enterprises operating under an Oligopolic framework are beneficial both for business owners as well as worker welfare .Owing to limited number if players influencing pricing decisions ,firms benefit from producing close substitutes aimed towards preventing customers shifting towards competitors while maintaining worker salaries through strategic pricing decisions(Murphy et al.,2019). At same time however such practices might not always be ethical considering concepts like exploitation despite improved working conditions ;issues raised here require further research into how various models interact differently influences how various stakeholders respond underlying issues created by COVID – 19 affecting businesses operations globaly(Faucher 2018 ).

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To conclude ,the analysis undertaken shows clear differences between how businesses operating under Perfect Competition Model and Oligopoic Model react when faced with crises posed bu economy wide shocks like COVID – 19 including differences concerning profitability ,worker salries etc . While enterprise functioning within Pefect Competition Model experince decrease revenue streams owing largely owing lack if control over product pricing leading lower level worker welfares impacted due extremly low wages ;contrarily business acing under Oligopoic Model often benifit fromt eh ability od few influential players controlling product pricing allowing better maintenance if prfoitability along side maintaining salary structures benefitting employment overall .

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