Perfect competition is a very rare type of market and so competitive that it negates the impact any one buyer or seller could have on the market price. The products or services sold are exactly the same and are all the same price. Firms earn only a normal profit and in the event firms started to earn more than that, other firms will enter the market and drive the price level down until only a normal profit could be made. Even the technology used is the same throughout all the companies.
Monopoly is a sole player and a single monopoly is seen as one organization that holds 100% of a certain market share. A monopoly produces less at a higher price and decides the price of its good/service by calculating the quantity of output so that its marginal revenue would equal its marginal cost. Afterwards the monopoly would then sell its good/service at whatever price would allow it to sell exactly that quantity.
In practice monopolies are not absolute; they are usually constrained by competing. A case of this occurs when a single firm dominates a certain market, but has no pricing power because it is in a Contestable Market, “a market in which an inefficient firm, or one earning excess profits, is likely to be driven out by a more efficient or less profitable rival.” (www.economist.com)
Oligopoly is when a few select firms dominate a select market. In this situation there are only a few producers but many buyers, and the action of one producer will affect the influences of other producers. (www.oligopolywatch.com) when this happens the producers can’t decide on a price like a monopoly can and they often turn into competitors. When they do compete on price, they may produce as much and charge as little as if they were in a market with perfect competition.
Easy Jets Market Structure
Like all organizations Easy Jets are in a market structure. Easy Jet is a low cost airline and is in the oligopoly market, it’s only rival being Ryan Air, as these two are the major airlines that offer low cost flights.
Because of the European Union’s ‘Open Skies’ agreement, which let competitors serve routes that were considered property of certain airlines, it was very easy for Easy Jet to enter the market. Here Easy Jet adopted an interesting strategy to overcome barriers put up by the airline market. In their first five years all passenger-handling, baggage-handling and various other operations were done through contract so the company could focus on cutting certain costs. Once the CEO decided the company had reached a sufficient size and profitability, they took control of all aspects of business and product operations. This allowed the company to avoid the barrier made by the expensive infrastructure.
Because the larger airlines sell a full service that charges premium prices for the high levels of service they provide Easy Jet was able to set itself on the other end of that scale; by setting their prices...