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Models of Competition - Essay Example

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Characterized by many sellers as well as buyers, no barriers to entry, ability to make profits in the short run with no profits in the long run, provision of differentiated goods and/or services, somewhat inadequate information and maximum profits arrived at where marginal…
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Models of Competition

Download file to see previous pages... e are just a few sellers in collusion (strategically interactive) with the main aim of minimizing competition to provide products and/or services to a large number of customers. A perfect example is the OPEC which controls the price of oil internationally.
Perfect (pure) market is broadly an assumption that describes structures in which no player is so enormous as to wield those powers to set the price of a homogenous commodity (Brakman, pg 13). It is always used as a benchmark.
In the ideal world, the market is in between the monopolies and perfect market structure. Monopolies do exist especially in the provision of very sensitive public utilities like in the provision of medical services, and public utilities such as gas, electricity, sports e.g. Super sport etc while perfect markets are rather theoretical. The stock markets are near perfect markets due to their composition but not very perfect as it is (Brakman, pg 106). The overarching issue is that competition in most if not all markets are imperfect and even though the goods and services may be differentiated, the firms would still face a down ward sloping curve trend. Markets assuming perfect competition do provide insufficient insight on how markets behave and respond to various factors. Even though the perfect market assumption provides a benchmark, the assumption is that they are pareto efficient. They are assumed to be controlled by such forces that even the government has no control over. This market has some limitations among the most crucial being the fact that all people are similar or identical for that matter. But through such models as the Dixit-Stiglitz model the element of the people’s welfare can clearly be examined. The result however gives us a false view of how the market is but for that reason, policies affecting the degree of diversity of merchandise differentiation are having markedly diverse effects on diverse individuals. This to a great extent complicates the analysis of the ...Download file to see next pagesRead More
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