Question

The main objectives of this discussion topic are the following:

To provide clear definition for Pure Competitive Markets or Perfectly Competitive Markets

To provide a clear set of characteristics of Purely Competitive Markets

To assess the theoretical and policy relevance of Purely Competitive markets to the real world (in other words evaluate why Purely Competitive Markets are still being taught in Principles of Microeconomics),

To provide clear definition for Non-Competitive Markets or Imperfectly Competitive Markets (example, Monopoly, Monopolistic, Oligopoly, Bilateral Monopoly etc)

To provide a clear set of characteristics of Non-Competitive or Imperfectly Markets

Also critically assess the theoretical and policy relevance of the different types of non-competitive markets in the real world

To comment on the Economics of Labor Markets -Are there purely competitive labor markets, Bilateral Monopoly labor markets, Monopolist labor markets etc?

Answer 1

Perfectly competitive market: It is a form of market where large number of sellers offering Homogeneous product to the Buyers.

Characteristics

1) Price taker: In this competition firm is price taker because there is large no firm present and if a firm leaves or enter in the market it does not affect price.Price is determined by the market factors which is demand and supply.

2) Free entry and Exit : There is no barrier at entry and exit of a firm from market means new firm can freely enter and existing firm can freely leave the market.

3) Homogenous product: Homogeneity of the product refers to the physical characteristics of the product like size,colour,shape etc. A firm cannot charge different price from its buyer.

In reality it is difficult to find Perfect competition due to its features like Homogeneous product, firm is price taker,Free entry and exit of firms, each firm has a small market share.It is theoretical market structure.

MONOPOLY: It is a market structure where one firm,called a monopolist or a monopoly firm,produces an industry's entire output.In contrast to perfectly competitive firms,which are price takers, a monopolist sets the market price.

Characteristics

1) Barriers to entry: The monopolist can maintain his monopoly only if he can prevent others from entering the market.Sometimes the barriers to entry may be natural and others time it may be artificial such as imposition of tariffs and duties,predatory pricing and Government Policy.

2) Supernormal profit: Because a monopolist can prevent other sellers from entering the market,he is able to maintain Supernormal or very high profits.

Oligopoly: It is market sitaution that lies in between monopoly and monopolistic competition.In this market situation the number of sellers is more than two but not many.Every seller has adequate stock of the commodity and he can influence the price.

Characteristics

1) Mutual interdependence : There is mutual interdependence about the decision relating to price and quantity demanded.This implies that firm has yo keep in mind prices fixed by other firms while deciding it's price.In not doing so firm can sustain losses.

2) Selling cost: Substantial amount is spent on advertisement and salesmanship under oligopoly.Every oligopolistic firm tries to increase the sales of its commodity through advertisement.These costs are negligible under perfect competition and monopoly.

Monopolistic : It refers to a market structure where there are many firms selling differentaited products which are close substitute and there is existence of free entry and exit of firms.

Characteristics

1) Differentiated product: Differentiation is not real,rather it is imaginary,beacuse in reality these commodities are the different forms of the same commodity.The differences is created by using separate colours,smells brand names,designs,packings etc.

2) Non-price competition : It includes varying the quality of the product,the location at which it is sold,servicing,packaging,advertising and so on. Particularly advertising is an important source of non- price comletition.