Perfect Competition Is Rare In The Real World
Perfect competition is rare in the real world, but the model is important because it helps analyze industries with characteristics similar to pure competition. This model provides a context in which to apply revenue and cost concepts developed in the previous lecture. Examples of this model are stock market and agricultural industries.
Perfect competition describes a marketplace that no one participant can set the market price of an exchangeable product. This is generally considered an ideal, rarely found in markets today. There are some approximations, such as online auctions, such as eBay. Such firms’ demand curves are perfectly elastic. These markets are theorized to have an unlimited number of buyers and sellers. There are likewise no barriers to entry or exit.
Monopolistic competition describes a marketplace offering differentiated products, and as such are not perfect substitutes. This is found in restaurants and other preference-driven goods. Such firms find a high elasticity of demand (in the long run), likely excess profits in the short term, and price setting available to them (as there are no perfect substitutes for their products; competitor prices are ignored).
Oligopoly refers to an industry dominated by a small number of sellers with market power. They have the ability to limit or discount competition, and artificially earn excess profits. U. S. cell phone providers are often cited as a clear example of oligopoly, as the major providers effectively control the market. They set market prices for their goods or services. Barriers to entry are high, from capital investment to government permission to enter a market. They are notable by profit levels above that driven by competitive models, as they set the market price. They do have a unique interdependence, as market actions taken by one influence actions of others (T-Mobile recently changed its model to fees for service, with separate pricing for cellphones. All other major carriers followed suit.).
Perfect competition describes a marketplace that no one participant can set the market price of an exchangeable product. This is generally considered an ideal, rarely found in markets today. There are some approximations, such as online auctions, such as eBay. Such firms’ demand curves are perfectly elastic. These markets are theorized to have an unlimited number of buyers and sellers. There are likewise no barriers to entry or exit.
Monopolistic competition describes a marketplace offering differentiated products, and as such are not perfect substitutes. This is found in restaurants and other preference-driven goods. Such firms find a high elasticity of demand (in the long run), likely excess profits in the short term, and price setting available to them (as there are no perfect substitutes for their products; competitor prices are ignored).
Oligopoly refers to an industry dominated by a small number of sellers with market power. They have the ability to limit or discount competition, and artificially earn excess profits. U. S. cell phone providers are often cited as a clear example of oligopoly, as the major providers effectively control the market. They set market prices for their goods or services. Barriers to entry are high, from capital investment to government permission to enter a market. They are notable by profit levels above that driven by competitive models, as they set the market price. They do have a unique interdependence, as market actions taken by one influence actions of others (T-Mobile recently changed its model to fees for service, with separate pricing for cellphones. All other major carriers followed suit.).