Question

Go online and find and find and example of a company that you believe represents a perfect competitor. Please use the book to support your assertion and make sure you can back up you claim.

Second, go online and find and find and example of a company that you believe represents a Monopoly. Please use the book to support your assertion and make sure you can back up you claim.

Answer 1

Perfect competition is a market structure where many firms offer a homogeneous product. Because there is freedom of entry and exit and perfect information, firms will make normal profits and prices will be kept low by competitive pressures.

Features of perfect competition

1. Many firms.
2. Freedom of entry and exit; this will require low sunk costs.
3. All firms produce an identical or homogeneous product.
4. All firms are price takers, therefore the firm’s demand curve is perfectly elastic.
5. There is perfect information and knowledge.

Examples of perfect competition

In the real world, it is hard to find examples of industries which fit all the criteria of ‘perfect knowledge’ and ‘perfect information’. However, some industries are close.

1. Foreign exchange markets. Here currency is all homogeneous. Also, traders will have access to many different buyers and sellers. There will be good information about relative prices. When buying currency it is easy to compare prices
2. Agricultural markets. In some cases, there are several farmers selling identical products to the market, and many buyers. At the market, it is easy to compare prices. Therefore, agricultural markets often get close to perfect competition.
3. Internet related industries. The internet has made many markets closer to perfect competition because the internet has made it very easy to compare prices, quickly and efficiently (perfect information). Also, the internet has made barriers to entry lower. For example, selling a popular good on the internet through a service like e-bay is close to perfect competition. It is easy to compare the prices of books and buy from the cheapest. The internet has enabled the price of many books to fall in price so that firms selling books on the internet are only making normal profits.

Ebay and Perfect Competition

There are several features of eBay which make the market competitive – and perhaps close to the model of perfect competition.

• Many buyers – thousands of people have access to viewing items listed on eBay. If I sold it in traditional means, smaller numbers of buyers would mean lower prices for me the seller.
• There are also many sellers who are free to enter eBay.
• Perfect Information. It is easy to search for iPads which are being sold.
• Freedom of entry. Anyone can enter.

A monopoly exists when only one company can supply an essential product or service in a given region because of significant barriers to entry for any competitor. The barriers can be legal or regulatory, economic, or geographic.

In the absence of competitors, a monopoly company can raise its prices, restrict its production, or safely ignore customer service concerns.

Best examples of a monopolistic market are as follows:

• Netflix.
• Alibaba.
• Amazon (Amazon_Cloud, Amazon_Prime)
• Nike(as it sells certain different products than Adidas or Reebok or any other top brand)
• Apple (Mainly in computers)
• Microsoft.
• Google.
• Youtube.