Perfect Competition

Perfect Competition - Why is perfect competition often...

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Why is perfect competition often described as the ideal market structure? Compare and contrast with other known market structures Several different market structures exist, and each has their own features that make them suitable in various different environments for a variety of business types. A Monopoly market structure is essentially a market in which one firm dominates, possessing market power and becoming the industry. In a monopolistic competitive market each firm has a differentiated product, and fluctuation in ones firms price can lead to a loss or increase of consumers. The market whereby domination of the market is by a sole firm rather than a few firms is an oligopoly. Perfect market structure, the most ideal structure, is where no firm dominates the market; therefore no firm has market power. For a market to be defined as a perfect competitive market certain criteria must be met. A large number of small firms that supply the product but do not influence market supply is one criterion that must be met. Entry to and from the market cannot be restricted; this differs from a monopolistic market as barriers to entry exist and can take several different forms. Some of these forms are by obtaining patents and copyrights over the production process for their products and controlling the scarce resources such as skilled labour and raw materials. Another criterion is that identical products must exist in this market, compared to an oligopoly market, the products are differentiated. The buyers and sellers in the market must have all the necessary information available to them is another criterion. Firms are aware that market price is something that they cannot influence and mass buyers are aware that they cannot influence market demand is a criteria that is opposite to all the other market structures. As difficult as these criteria appear, a perfectly competitive market does not need to fulfil all of these criteria. These criteria give the market a sense of freedom and a fair advantage to all firms. It means that each firm can sell their product in a more harmonious environment compared to an oligopoly market where each firm needs to take
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This note was uploaded on 04/18/2008 for the course MGMT MN1015 taught by Professor Giouvris during the Spring '08 term at Royal Holloway.

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Perfect Competition - Why is perfect competition often...

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