In a market characterized by monopoly in the short run generally gets transformed into an oligopolistic market in the long run. The oligopolistic market structure is characterized by four to five most competent and big organizations dominating the market. This kind of market is already developing in NSW taxi industry. Uber has got a few competitors, such as Sidecar and Lyft. The entry barrier will still be existent even when the market turns into an oligopolistic one.
The characteristics of Monopoly are one firm dominates market. The fall outs of monopoly are that it is the profit maximiser, it is the price maker, and have high barrier to new entrants. Uber entered the NSW market with cutting edge technology that was offered by the local taxis.
The characteristics of the monopolistic competition are the event of several firms entering the market with services similar, but seized to be, perfect substitutes. Although, the entry barrier is $400, 000, the taxi business is a growing industry and there will be promoters having or have the access to that amount of funds to enter the industry.
The monopoly is characterized by complete control of the market. The market’s supply side is controlled by the monopoly. The perfect competition, on the hand, is characterized by firms not having any market control.
There are four aspects that are important in the comparison of monopoly to the characteristics of perfect competition: (a) relatively small firms that are in large numbers; (b) products are identical; (c) entry and exit freedom; and (d) knowledge are perfect.
The strategies that can be taken are the reduction in price, improved services, improved conditions of the vehicles, and promotional activities.
In the long run of the monopolistic competition, the excess capacity is created in the quantity of Uber taxis. The excess capacity is marked by the area between the: (a) the meeting point of ATC (Average Total Cost) and demand; and (b) intersection point of MC (Marginal Cost) and ATC (Average Total Cost). As the diagram shows, as the capacity of the quantity of the Uber taxis increases, the demand for the Uber cabs decreases. The MR (Marginal Revenue) decreases with the increase in the capacity for the quantity of the Uber cabs. However, there is increase in the MC (Marginal Cost). The three points of intersection in the area where the excess capacity of the Uber cabs have been created are: (a) the intersection point of MR (Marginal Revenue) and MC (Marginal Cost) as well as tangent between the ATC (Average Total Cost) and demand curve; (b) the intersection point of demand curve and MC (Marginal Cost); and (c) intersection point of MC (Marginal Cost) and ATC (Average Total Cost).
When the cost increases, the MR (Marginal Revenue) decreases. Also, ATC (Average Total Cost) decreases resulting in the greater economic profit. However, at the same time, demand also increases as the cost increases with increase in the price of car number plate registration.