Question

If perfectly competitive firms are price takers, and monopolistic, monopolistic competitive, and oligopolistic firms are price searchers, then it follows that three times as many firms in the real world are price searchers than are price takers. Do you agree or disagree? Explain your answer. (Answer: 400-500 words)

Answer 1

Ans.

Ans. Yes, I completely agree with this statement that three times as many firms in the real world of price searchers than price takers.

Many firms in the market or price searchers because pricing policy is a very critical strategy of any organisation. It is very important to understand the policies of the competitors in relation to the pricing strategies because the world is more competitive and many of the forms are making close substitutes of the goods and consumers have choices.

It can be better explained with the help of the characteristics of the market conditions.

Perfect competition market is that market situation we are a large number of buyers and sellers are existing and all the sellers are selling the homogeneous commodity at a constant price therefore in this market industry decide the price and all the existing firms are accepting the price decided by the industry with the help of demand and supply forces and therefore in this market firms are price takers.

So the perfect competition market is the only market where firms are bound to accept the price decided by the industry because here the demand curve is perfectly elastic.

A monopolistic market is that market situation where a large number of buyers and sellers are existing and sellers are selling close substitute of the commodity at competitive price here the feature of product differentiation is applicable and the consumer has a big choice of the product, therefore, all the firms in this market are more concerned about the pricing policies of the competitive firms and that’s why here firms are price searchers.

Oligopoly market is that market situation where few sellers are existing but the number of buyers is very large here all the forms are selling very close substitute of the commodities and therefore in this market, the competition level is very high and because of the existence of price leadership and price rigidity the firms are the price searcher to know the pricing strategies of the existing competitive firms.

Monopoly market is that market situation where only one form is existing but the number of buyers is very large here there is no difference between the industry and the far but still in the absence of competition the monopoly market is also concerned about the pricing strategies because the main purpose is to increase the revenue and therefore the firm is making that pricing policy which is applicable to all the consumers.

In conclusion after analysing the different market conditions, it is clear that many of the firms are price searchers instead of price takers because of the existence of a high level of competition in the present consumer market.