Question

Although there is no such thing as a Perfectly Competitive Market in the real world, which industry listed below will come closest to the academic model of a Perfectly Competitive Market?

• 1-The online travel industry – Yahoo Travel, Expedia, Priceline.com.

• 2-Microsoft Corporation.

• 3-The airline industry – Southwest, United, Delta and JetBlue.

• 4-The auto industry – General Motors, Ford, Chrysler and Toyota.

Answer 1

A perfect competition market is the type of market structure where firms and consumer has full information about market prices and products, where firms and consumers are large enough that no single firm or consumer can affect prices. Here the firms make similar products and are called price takers. There is no barrier to entry or exit from the market. In real world there is less of  such Perfectly competitive market as consumer are not always rational and firms produce close substitutes but differentiated products.

Here the online travel industry can be said to be in perfect competition as the service offered by them are identical. As we consumers always are aware of prices that each travel company is charging for same service or destination(online search). Firms here will compete to attract customers by setting best online prices and offers, thus are price takers in the industry.