Homogeneous Product- The product of every supplier is identical in every aspect. However, perfect competition is used as a base to compare with other forms of market structure. Advertising broadens the market and encourages competition. But no firm possesses a dominant market share in perfect competition. In other words, he is powerless in determining price but he can set the quantity he wants to sell.
Monopoly is the polar opposite of perfect competition. So, monopolistic competition is a market structure, where there is competition among a large number of monopolists. It is difficult to enter and leave such a market since the companies enjoy control over such things as patents, raw materials and other physical resources. They face no barriers to entry or exit and possess complete knowledge of their competitors' products and prices. Meanwhile, monopolistic competition refers to a market structure, where a large number of small firms compete against each other with differentiated products.
Public utilities are examples of monopolies; there is only one place to buy electricity and only one place to buy water. They are free to buy or to sell to any person. A perfectly competitive market is one that has the following characteristics:. That gives Monsanto an extremely high level of market power. Moreover, the knowledge and information are perfect.
First of the four markets is a perfect competition market. However, by producing a unique product or establishing a particular reputation, each firm has partial control over the price. Example: Suppose you go to a vegetable market to buy tomatoes. Thus, all four factors can be moved from one place to another freely. Intangibility: Services can not be touched or viewed. There are quite a few different market structures that can characterize an economy. One of the defining characteristics of this structure is that the firms can sell identical products, meaning there are many sellers of the same product.
According to Scitovsky buyers and sellers are price takers in the purely competitive market. Perfect mobility of factors of production: In a perfectly competitive market, the factors of production are completely mobile leading to factor-price equalization throughout the market. There are a large number of buyers and sellers in a perfectly competitive market. Here prices are liable to change freely in response to demand and supply conditions. In this market, advertisement has no scope. Transactions are Costless - Ebay charges sellers for each sale.
Because of this, each seller from each firm holds a very small portion of the overall market. The single firm is said to be a price taker, taking its price from the whole industry. The development of new markets in the technology industry also resembles perfect competition to a certain degree. In contrast to this, within a monopoly there is only one firm operating in the market. The products they sell and how they differ. Neither will the rational producer lower price below the market price given that it can sell all it produces at the market price.
Thus the essential features of a market are a a commodity which is bought and sold b existence of buyers and sellers, c a place d The contact between buyers and sellers. Perfect knowledge: In a perfectly competitive market, the firms and the buyers possess perfect information about the market. In this way, with the help of stable demand and supply, we can maintain single price in the Market. Every buyer has to accept the price decided by market forces of demand and supply. Thus, maximisation of profits in the short-run implies maximisation of profits in the long-run.
Thus cheap and efficient means of transport and communication are must. Like the buyers they too cannot control price. Therefore, they are often regulated by the government. Perfect knowledge: Perfect competition implies perfect knowledge on the part of buyers and sellers regarding the market conditions. Sellers often create and exploit irrational consumer preferences through subtle advertisement and salesmanship. Even when the products of two sellers are identical, advertising increases and intensifies the demand of the product advertised. Definition: Perfect competition describes a market structure where competition is at its greatest possible level.