Perfect Competition - develop similar products, and restore...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
If all the assumptions of perfect competition hold, why would firms in such an industry  have little incentive to carry out technological change or much research and  development? What condition would encourage research and development in competitive  industries? The characteristics of a market where there’s perfect competition include: Several buyers and sellers Low barriers for market entry and exit Price awareness among all producers and consumers Zero costs in buyer-seller transactions Emphasis on profit maximization Product homogeneity A technological change or a research and development undertaking often comes with significant  costs. If a firm in a perfectly competitive market environment makes a big investment in a  technological change and comes up with an innovative product, other firms will soon follow suit, 
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: develop similar products, and restore homogeneity in the market. While the firm that originally invested in the technology change has to put up with all the research and development costs, the other firms just get to copy the idea and reap the benefits. Such a situation thus gives little incentive for firms in a perfectly competitive market to attempt a technological change or carry out much research and development. Strong patent rights, intellectual property rights, and copyright laws can go a long way in encouraging firms in competitive industries to undertake research and development efforts, create innovative products, and exclusively receive the rewards. Reference: http://www.landandfreedom.org/econ/econ8f.htm...
View Full Document

This note was uploaded on 02/16/2012 for the course AMERICAN I American I taught by Professor Americaninternationcollege during the Spring '12 term at American Internation College.

Ask a homework question - tutors are online