Perfect Compitition in Share Market
1.0 Introduction:
The spectrum of competition ranges from perfectly competitive markets where there are many sellers who are price takers to a pure monopoly where one single supplier dominates an industry and sets price. We start our analysis of market structures by looking at perfect competition.
Firms operate within their market, which consists of:
Supply side: all of the firms producing similar products
Demand side: all buyers willing to purchase the products
Markets differ; the auto market is far different from the tomato market, for example. Thus economists separate markets into 4 categories: perfect competition, monopolistic competition, oligopoly, and monopoly.
Perfect competition: There are many, many small sellers (technically, there must be an infinite number of sellers), each of whom produces an identical product. It is very easy for new sellers to enter this market, and it is easy for existing sellers to leave the market. Examples: There are no real world examples of perfectly competitive markets. The stock market comes close.
2.0 Analysis
2.1 Perfect competition
Perfect competition describes a market structure whose assumptions are extremely strong and highly unlikely to exist in most real-time and real-world markets. The reality is that most markets are imperfectly competitive. Nonetheless, there is some value in understanding how price, output and equilibrium is established in both the short and the long run in a market that holds true to the tough assumptions of a world of perfect competition.
Economists have become more interested in pure competition partly because of the rapid growth of e-commerce in domestic and international markets as a means of buying and selling goods and services. And also because of the popularity of auctions as a rationing device for allocating scarce resources among competing ends.
Basic assumptions required for conditions of pure competition to exist
• Many small firms, each of whom produces
The spectrum of competition ranges from perfectly competitive markets where there are many sellers who are price takers to a pure monopoly where one single supplier dominates an industry and sets price. We start our analysis of market structures by looking at perfect competition.
Firms operate within their market, which consists of:
Supply side: all of the firms producing similar products
Demand side: all buyers willing to purchase the products
Markets differ; the auto market is far different from the tomato market, for example. Thus economists separate markets into 4 categories: perfect competition, monopolistic competition, oligopoly, and monopoly.
Perfect competition: There are many, many small sellers (technically, there must be an infinite number of sellers), each of whom produces an identical product. It is very easy for new sellers to enter this market, and it is easy for existing sellers to leave the market. Examples: There are no real world examples of perfectly competitive markets. The stock market comes close.
2.0 Analysis
2.1 Perfect competition
Perfect competition describes a market structure whose assumptions are extremely strong and highly unlikely to exist in most real-time and real-world markets. The reality is that most markets are imperfectly competitive. Nonetheless, there is some value in understanding how price, output and equilibrium is established in both the short and the long run in a market that holds true to the tough assumptions of a world of perfect competition.
Economists have become more interested in pure competition partly because of the rapid growth of e-commerce in domestic and international markets as a means of buying and selling goods and services. And also because of the popularity of auctions as a rationing device for allocating scarce resources among competing ends.
Basic assumptions required for conditions of pure competition to exist
• Many small firms, each of whom produces
References: Text book of microeconomics www.dti.gov.uk www.wikipedia.com www.investopedia.com