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Postal service: government-regulated, government-monopolist Australia, the Netherlands have fully privatized in postal service Tight competition vs. DHL, FedEx, UPS, TNT, airline cargo, etc. Current trend: providing other services, including banking services. Competitors: internet (email), VoIP (voice over internet protocol), mobile phone.
In a market with two firms that each have 50 percent market share, the Hirfindahl index equals .52 + .52 = .5.
Range of Herfindahls
Below .2 Below .2
.2 to .6 .6 and above
Perfect Competition
There are many sellers Consumers perceive the product to be homogeneous There is excess capacity No producer can set the price (price taker)
Monopoly
A monopolist enjoys no competition in its output market. Competition, if it exists, comes from fringe firmssmall firms that collectively account for no more than about 30 to 40% market share and do not threaten to erode the monopolys share.
There are many sellers. For example, there are many clothing sellers in Chicago. If any one seller were lower its prices, it is doubtful that other sellers would react. Even if some sellers did notice a small drop-off in sales, they would probably not alter their prices just to respond to a single competitor.
Each seller sell a differentiated product. Unlike under perfect competition, where products are homogeneous, a differentiated seller that raises its price will not lose all its customers.
An important source of horizontal differentiation is geography, because consumers prefer stores that are convenient to reach. For example, consumers living in Brooklyn will tend to frequent stores in Brooklyn, whereas consumers in Manhattan will tend to frequent stores in Manhattan.