Monopolistic competition in semiconductor industry

          Nowadays, semiconductor production technology is the most important industry for South Korea. In 1947, Bell Laboratories developed a transistor which is the beginning of D-RAM. Next, American companies dominated the semiconductor market especially Intel which is the largest semiconductor company in the 1970’s. After that, Japanese companies’ inherited the technology from America. As a result, Japanese companies dominated 75% of the world’s D-RAM in the 1980’. In 1984, Korean companies such as Samsung, LG, and so on entered the market then, Samsung held the top place in this business from 1992 until now. In the second quarter of 2011, Korean companies market share of D-RAM market was 49% in 2007, and in 2011, a 16% increased after three and a half years. It seems that Korean companies can monopolize in the near future.

 

          Recently, Samsung Electronic set a minimum price of D-RAM consistently in order to greatly surpass their competitors in the market share which is called chicken fight. The general meaning of chicken game, also known as the hawk-dove game or snow-drift game, is an influential model of conflict for two players in game theory. The principle of the game is that while each player prefers not to yield to the other, the worst possible outcome occurs when both players do not yield. However, actual meaning of chicken game in economics is that companies lower the price even they are operating at a loss. The main purpose of this game is that monopolize a market. Consequently, Samsung won this game because it has enormous financial firepower and it has highest market share among the rest companies in the market. However, as the price of D-RAM decrease again and again, everything is like the way it used to be. It means that, industry was almost same as monopoly after chicken game, but now, it becomes perfect competition.

 

          Monopoly is a firm that is the sole seller of a product without close substitute.

Monopoly in the short run

 

          This graph shows that monopoly in the short run. In this case, the intersection of the marginal revenue curve and the marginal cost curve determines the profit-maximizing quantity. The features of monopoly are different compare to perfect competition. For example, while a competitive firm is a price taker, a monopoly firm is a price maker. Besides that, monopoly is that there is no competitors, one seller and large number of buyers, no barriers to entry, and so on.

 

          On the other hand, perfect competition is a market where no buyer or seller can affect the price of the product, all units of the product are homogeneous, resources are mobile, and knowledge of the market is perfect.

 

Perfect competition in the short run

 

 

          There are many differences between the past and the present. Samsung electronics cannot discriminate prices for their products now. Last time, Samsung electronics lowered the price because they wanted to compete in price and they were confident of winning. Because of this, other companies also lowered the price. In consequence, all companies which are in the same market made a loss. After that, only a few companies which have enough money survived in the market. For instance, Hynix Semiconductor Inc. which was archrival of Samsung electronics share price declined more than 80% at that time. It means that, Samsung electronics almost dominated the D-RAM market. However, the price is almost same no matter which brand and even there is cheaper model compare to Samsung electronics now. In addition to that, there are competitors because the price of D-RAM dropped sharply. The most important purpose of chicken game was to try to monopolize in the market. However, as the cost competitive dropped, many of their competitors are going into the industry such as Hynix, Toshiba, and so on.

            Since the price of D-RAM declined, many professionals also do not know why the price is still low even there are only a few competitors now. For this reason, they guess that Samsung electronics is preparing to do chicken game again. Monopoly is a form of imperfect competition. Furthermore, monopoly is not a best way to customers because there are only limited options. In conclusion, the most significant difference between monopoly and perfect competition is competitors.