Why perfect competition is the best market structure
Why perfect competition??
Executive Summary
This report provides information related to the four main market structures and why perfect competition is the most efficient. Features of four market structures and comparison of monopoly and perfect competition.
Perfect completion is most efficient
Subject matter
Details
Conclusions
Introduction
Market structure is best defined as the organizational and other characteristics of a market. We focus on those characteristics which affect the nature of competition and pricing.Traditionally, the most important features of market structure are:
1. Number of Buyers and Sellers:
Number of buyers and sellers of a commodity in the market indicates the influence exercised by them on the price of the commodity. In case of large number of buyers and sellers, an individual buyer or seller is not in the position to influence the price of the commodity. However, if there is a single seller of a commodity, then such a seller exercises great control over the price.
2. Nature of the Commodity:
If the commodity is of homogeneous nature, i.e. identical in all respects, then it is sold at a uniform price. However, if the commodity is of differentiated nature (like different brands of toothpaste), then it may be sold at different prices. Again, if the commodity has no close substitutes (like Railways), then the seller can charge higher price from the buyers.
3. Freedom of Movement of Firms:
If there is freedom of entry and exit of firms, then price will be stable in the market. However, if there are restrictions on entry of new firms and exit of old firms, then a firm can influence the price as it has no fear of competition from other or new firms.
4. Knowledge of Market Conditions:
If buyers and sellers have perfect knowledge about the market conditions, then a uniform price prevails in the market. However, in case of imperfect knowledge, sellers
Executive Summary
This report provides information related to the four main market structures and why perfect competition is the most efficient. Features of four market structures and comparison of monopoly and perfect competition.
Perfect completion is most efficient
Subject matter
Details
Conclusions
Introduction
Market structure is best defined as the organizational and other characteristics of a market. We focus on those characteristics which affect the nature of competition and pricing.Traditionally, the most important features of market structure are:
1. Number of Buyers and Sellers:
Number of buyers and sellers of a commodity in the market indicates the influence exercised by them on the price of the commodity. In case of large number of buyers and sellers, an individual buyer or seller is not in the position to influence the price of the commodity. However, if there is a single seller of a commodity, then such a seller exercises great control over the price.
2. Nature of the Commodity:
If the commodity is of homogeneous nature, i.e. identical in all respects, then it is sold at a uniform price. However, if the commodity is of differentiated nature (like different brands of toothpaste), then it may be sold at different prices. Again, if the commodity has no close substitutes (like Railways), then the seller can charge higher price from the buyers.
3. Freedom of Movement of Firms:
If there is freedom of entry and exit of firms, then price will be stable in the market. However, if there are restrictions on entry of new firms and exit of old firms, then a firm can influence the price as it has no fear of competition from other or new firms.
4. Knowledge of Market Conditions:
If buyers and sellers have perfect knowledge about the market conditions, then a uniform price prevails in the market. However, in case of imperfect knowledge, sellers
References: Grant SJ.(2000), Introductory Economics, (7th edn), Pearsons Eucation, UK. http://en.wikipedia.org/wiki/Market_structure http://www.slideshare.net/mithileshtrivedi581/market-structure-and-types-of-market-strucyure