Notes_for_Perfect_Competition

Notes_for_Perfect_Competition - 121 Chapter 12 Perfect...

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Chapter 12 Perfect Competition First let’s define market structure Market structure   physical characteristics of the market/industry in which a firm  operates o includes: o number of firms in the market o barriers to entry o communication among firms o strategies (Note: strategy = plans that take account of what others are likely  to do) 12-1
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There are a number of market structures: Two extremes are: Perfect competition o many small firms  o no barriers  o communication o no strategic behaviour o identical products (homogeneous) o many buyers Perfect monopoly  o one large firm o large barriers o no communication,  o no strategic behaviour Most of the real world falls in between these  extremes. 12-2
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Examples of Perfect Competition o Internet Services o Stock Market  o http://www.tsx.com     o Wheat Farming o Fishing  o Maple Syrup o Copy shops Competition Act http://cb-bc.gc.ca o Describes government legislation to encourage  competition 12-3
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Competitive Market Structure o A firm is said to have a competitive structure when its firms have little or  no market power o The more market power the firms have, the less competitive is the market  structure Examples of Perfectly Competitive Firms o The Stock Market  o www.tsx.com     o http://www.nyse.com/marketinfo/mktstruc/1092772591021.html     o wheat farming o fishing  o wood pulping and paper milling o the manufacturer of paper cups and plastic shopping bags o lawn service o dry cleaning  o the provision of laundry services Example:  America Online versus Campus Bookstore o America online  would love to increase the price of accessing its archive of information and  internet services o It isn’t likely to do so – however, because too many other firms also offer online services and  net access o If America Online increased prices, customers might sign up with another company o Campus bookstore o Your campus bookstore may be in a better position to increase prices o If the campus store increase the price of books or supplies, most of its customers  (you) will have little choice but the pay the higher tab Example:  The Stock Market o The market for stocks traded on the New York and many other stock exchanges is as close  as we come today to a perfectly competitive market o In most cases the price of a particular stock is determined by the market forces of demand  and supply of the stock o Individual buyers and sellers of the stock have an insignificant effect on price (i.e. they are  price takers) o All stocks within each category are more or less homogenous o Finally, information on prices and quantities traded is readily available 12-4
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E-Commerce is increasing competition o
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This note was uploaded on 07/12/2010 for the course ECON 202 taught by Professor Angelatrimarchi during the Spring '10 term at Waterloo.

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Notes_for_Perfect_Competition - 121 Chapter 12 Perfect...

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