Perfect Competition
A Case Study In Perfect Competition: The U.S. Bicycle Industry
Submitted by Jay on Sun, 2006-07-16 22:27.
I had an epiphany, as in a sudden insight into reality, in May at a meeting where a long time friend in the industry offered the opinion that the U.S. bicycle industry is in a classic state of perfect competition. My immediate response was "...that sounds like a good thing!" My friend, who went back to graduate school after working in a bike shop, for a major component manufacturer and prominent bicycle brand quickly responded with "...no, you don't understand." He went on to explain that when he studied economics in graduate school he became aware of perfect competition which is a term of art in economics for the most competitive market imaginable - one where the companies and businesses realize the bare minimum profit necessary to keep them in business.
At the time we were in a meeting together with six other people from the bicycle industry - and the room went silent for a time. As the group started to discuss the notion of perfect competition it became apparent that no one strongly disagreed, and in fact there seemed to be more agreement than not that our industry was indeed in perfect competition.
We ended our meeting, and went our separate ways, but the concept of perfect competition stayed with me, kind of like the dull pain of a toothache. When I got back to my office I did a search on the web and found quite a lot about this subject. Here is a summary of what I learned.
Perfect competition, according to economists, is the most competitive market imaginable. In the real world, it is rare, and there are even some economists that feel it may not even exist in its purest (I take this as worst) form. The example of a market in perfect competition that is referenced by those economists that believe it does exist - is agriculture.
Competition is ... competition, so what makes perfect competition different from all other forms or kinds of competition?
Submitted by Jay on Sun, 2006-07-16 22:27.
I had an epiphany, as in a sudden insight into reality, in May at a meeting where a long time friend in the industry offered the opinion that the U.S. bicycle industry is in a classic state of perfect competition. My immediate response was "...that sounds like a good thing!" My friend, who went back to graduate school after working in a bike shop, for a major component manufacturer and prominent bicycle brand quickly responded with "...no, you don't understand." He went on to explain that when he studied economics in graduate school he became aware of perfect competition which is a term of art in economics for the most competitive market imaginable - one where the companies and businesses realize the bare minimum profit necessary to keep them in business.
At the time we were in a meeting together with six other people from the bicycle industry - and the room went silent for a time. As the group started to discuss the notion of perfect competition it became apparent that no one strongly disagreed, and in fact there seemed to be more agreement than not that our industry was indeed in perfect competition.
We ended our meeting, and went our separate ways, but the concept of perfect competition stayed with me, kind of like the dull pain of a toothache. When I got back to my office I did a search on the web and found quite a lot about this subject. Here is a summary of what I learned.
Perfect competition, according to economists, is the most competitive market imaginable. In the real world, it is rare, and there are even some economists that feel it may not even exist in its purest (I take this as worst) form. The example of a market in perfect competition that is referenced by those economists that believe it does exist - is agriculture.
Competition is ... competition, so what makes perfect competition different from all other forms or kinds of competition?