The perfect competition market examples make it clear how efficiently market relations work. The key concept here is freedom of choice. Perfect competition takes place where many sellers sell the same product, and many buyers purchase it. No one has the power to dictate terms or to raise prices.
Examples of a perfect competition market are not so common. In reality, very often there are cases when only the will of the seller decides how much this or that product will cost. But with an increase in the number of market players who sell identical goods, unreasonable overstatement is no longer possible. Price is already less dependent on one particular merchant or a small group of sellers. With a serious increase in competition, on the contrary, buyers already determine the value of the product.
Perfect Market Examples
In the mid-1980s, prices for agricultural products fell sharply in the United States. Dissatisfied farmers began to blame the authorities. According to them, the state has found an instrument to influence agricultural prices. It dropped them artificially in order to save on compulsory purchases. The fall was 15 percent.
Many farmers personally went to the largest commodity exchange in Chicago in order to verify their correctness. But they saw there that the trading platform unites a huge number of sellers and buyers of agricultural products. No one is artificially able to underestimate the price of any product, since there are a huge number of participants in this market from both one and the other. This explains the fact that in such conditions unfair competition is simply impossible.
Farmers personally made sure on the stock exchange that everything is dictated by the market. Prices for goods are set regardless of the will of one particular person or state. The balance of sellers and buyers set the final cost.
This example illustrates this concept. Complaining about fate, US farmers began to try to get out of the crisis and no longer blamed the government.
Signs of perfect competition
These include the following:
- The cost of goods is the same for all buyers and sellers of the market.
- Product Identity.
- All market players fully own product information.
- A huge number of buyers and sellers.
- None of the market participants individually affects pricing.
- The manufacturer has the freedom to enter any area of production.
All these signs of perfect competition in the form in which they are presented are very rarely present in any industry. There are few examples, but they are. These include the grain market. Demand for agricultural products always regulates pricing in this industry, since it is here that you can see all of the above signs in one area of production.
The benefits of perfect competition
The main thing is that in conditions limited resources the distribution is more equitable, since the demand for goods forms the price. But the growth of supply does not particularly overstate it.
Disadvantages of perfect competition
Perfect competition has a number of disadvantages. Therefore, you can not fully strive for it. These include:
- The model of perfect competition inhibits scientific and technological progress. This is often due to the fact that the sale of goods with high supply is given slightly above cost with minimal profit. Large investment reserves do not accumulate, which can be used to create more advanced production.
- Goods are standardized. There is no uniqueness. No one stands out with sophistication. This creates a kind of utopian idea of equality that consumers do not always accept. People have different tastes and needs. And they need to be satisfied.
- Production does not calculate the content of the non-productive sector: teachers, doctors, army, police. If the entire economy of the country had a complete perfect look, humanity would forget about such concepts as art, science, since there would simply be no one to feed these people. They would be forced to go into the manufacturing sector with the goal of a minimum source of income.
Examples of perfect competition market showed consumers the uniformity of products, the lack of opportunities to develop, improve.
Marginal revenue
Perfect competition negatively affects the expansion of business enterprises. This is connected with the concept of "marginal revenue", due to which firms are not resolved to build new production capacities, increase the area sown, etc. We will examine in more detail the reasons.
Suppose one agricultural producer sells milk and decides to increase production. At the moment, net profit per liter of product, for example, 1 dollar. Having spent money on expanding feed supply and building new complexes, the company increased output by 20 percent. But his competitors did it, also hoping for a stable profit. As a result, the market received twice as much milk, which dropped the cost of finished products by 50 percent. This led to the fact that production became unprofitable. And the more the livestock producer has, the more losses it incurs. The industry of perfect competition goes into recession. This is a vivid example of marginal revenue, more than which the price will not rise, and an increase in the supply of goods to the market will bring only losses, not profit.
The antipode of perfect competition
It is unfair competition. It arises if there are a limited number of sellers on the market, and the demand for their products is constant. In such circumstances, it is much easier for enterprises to agree among themselves, dictating their prices in the market. Unfair competition is not always a conspiracy, a scam. Very often there are associations of entrepreneurs in order to develop uniform rules of the game, quotas for manufactured products with the goal of competent and effective growth and development. Such firms know and calculate profit in advance, and their production is devoid of marginal revenue, because none of the competitors unexpectedly throws a huge volume of products onto the market. Its highest form is monopoly, when several large players unite. They lose competition. In the absence of other producers of identical goods, monopolies can set an unreasonable, unreasonable price, earning superprofits.
Officially, many states are fighting against such associations, creating antitrust services. But in practice, their struggle does not bring much success.
Conditions under which unfair competition occurs
Unfair competition arises under the following conditions.
- A new, unknown area of production. Progress does not stand still. There are new science and technology. Not everyone has huge financial resources for the development of technology. Often, several leading companies create more advanced products and are monopolists in their implementation, thereby artificially inflating the price of this product.
- Industries that depend on powerful associations in a single large network. For example, the energy sector, the railway network.
But this is not always disastrous for society. The advantages of such a system include the opposite disadvantages of perfect competition:
- Huge excess returns allow you to invest in modernization, development, scientific and technological progress.
- Often, such enterprises expand the production of goods, creating a struggle for the customer between their products.
- The need to protect their position. The creation of the army, the police, public sector employees, since many free hands are freed. There is a development of culture, sports, architecture, etc.
Summary
Summing up, we can conclude that there is no system that is ideal for a particular economy. In every perfect competition, there are a number of disadvantages that impede society. But the arbitrariness of monopolies and unfair competition only leads to slavery, a miserable existence. The result is one - it is necessary to find a middle ground. And then the economic model will be fair.
