NOTES:
Spectum of Competition
Types:
1. Perfect Competition – identical products, numerous buyers and sellers.
Example: farmer’s sacks
Characteristic: price taker; profits are low; easy entry and easy exit.
2. Monopoly – one single seller
Example: computers; photocopying machines
Large firms merged together – example: coke and pepsi
3. Monopolistic Competition – heterogeneous products
: can choose but cannot really raise as monopoly
: increase profits in the short run
4. Oligopoly – small number of firms; have most all revenues in a given market
: explicit collusion
Natural Monopoly
- Economies of scale
Example: production of electricity
Elastic – monopoly
Trade offs + Monopoly price = Perfect Monopoly
Consumers: in favor of competition - more innovative products
Sellers: unfavor of competition
ANTI TRUST - protection against monopoly
Federal Trade Commission - independent agency
REACTION/LEARNIGS:
The spectrum of competition ranges from highly competitive markets where there are many sellers, each of whom has little or no control over the market price - to a situation of pure monopoly where a market or an industry is dominated by one single supplier who enjoys considerable discretion in setting prices, unless subject to some form of direct regulation by the government.
I have realized that not everything in our society is, or should be, subject to competitive forces. But competition is the basic organizing principle of our economic system. Most goods
and services reach us via more or less competitive routes. Just take the example when we are delivering or sending money from one country to the other. There are a lot of channels involved before we could send or before we could get the money. Different firms with related services will be involved and they also gain such benefit from our act. Different firms but we must only choose one that will give us the better service. With this, competition really exists also in our everyday life.
The fundamental practical importance of competition is not the only reason to be
interested in competition economics. Every day there are controversies about
competition questions − for example about mergers, monopoly power, deregulation,
subsidies, and trade policy.
The following are the learning I’ve gained not just in the film but also from the previous discussions about a Perfectly Competitive Market.
1. Many suppliers each with an insignificant share of the market – this means that each firm is too small relative to the overall market to affect price via a change in its own supply – each individual firm is assumed to be a price taker.
2. An identical output produced by each firm – in other words, the market supplies homogeneous or standardised products that are perfect substitutes for each other. Consumers perceive the products to be identical.
3. Consumers have perfect information about the prices all sellers in the market charge – so if some firms decide to charge a price higher than the ruling market price, there will be a large substitution effect away from this firm.
4. All firms (industry participants and new entrants) are assumed to have equal access to resources (technology, other factor inputs) and improvements in production technologies achieved by one firm can spill-over to all the other suppliers in the market.
5. There are assumed to be no barriers to entry & exit of firms in long run – which means that the market is open to competition from new suppliers – this affects the long run profits made by each firm in the industry. The long run equilibrium for a perfectly competitive market occurs when the marginal firm makes normal profit only in the long term.
6. No externalities in production and consumption so that there is no divergence between private and social costs and benefits.
Its good to know that despite the problem in the movement in economy, there is still this AntiTrust law present. Antitrust law regulates economic activity but differs in its operation from what is traditionally considered "regulation." Where regulation is often industry-specific and involves the direct setting of prices, product characteristics, or entry, antitrust law focuses more broadly on maintaining certain basic rules of competition.
The film itself will really gave students the idea on how important to study the movement in our economy. This will add up to our knowledge that competition is not always a perfect one. There are a lot of types of competition that we must also consider. It's good to have a competition, but it's better to have this in a healthier way.
