Essays on Perfect Competition and Its Efficacy as a Policy Tool Essay

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The paper 'Perfect Competition and Its Efficacy as a Policy Tool' is a great example of a Management Essay. The level of competition in a market is partly determined by how many suppliers are jostling for the demand of consumers. It may also be determined by how difficult it is for a new entrant to get into the market. It is typically more difficult for a new entrant to get into more competitive markets. The range of competition ranges from highly competitive markets where there are many sellers each of whom has control of the market price to a purely monopolistic situation where the market is dominated by a single seller who has a great say regarding the pricing of the product.

This discretion exists in monopolies as long as there is no regulation from the government. Perfect competition Perfect competition describes an idealized market structure that has an efficient allocation of resources. There is equality between profits and marginal costs, which is achieved through the production of profit-maximizing quantities. The economic factors necessary for perfect competition are that all firms in the industry sell similar products; none of the firms in the industry should be big enough to determine prices.

To prevent them from having the power to determine prices, all of the firms in the industry should have a small market share. Those buying from the industry should have full information on the nature of the product on offer. Players in the industry should be free to get in and go out (Kapeller & Pü hringer 2010). The efficient allocation of resources is achieved when the society is satisfied to the extent that the production of more of one good and less of another would not increase the level of satisfaction.

Equality between price and marginal costs results in efficiency because the price that generates buyers’ willingness to buy the product is often an indication of the satisfaction generated from production and consumption of the product (Koutsougeras 2009). Therefore, if a product proves to be more satisfying, customers are will pay a higher price for it. Marginal costs, on the other hand, indicate the gain that has been given up when the decision to produce one good and not the other is made.

If the product whose production has been foregone is in less demand than the one being produced, the marginal cost of production is low. When the foregone production increases satisfaction the marginal cost of production increases, efficiency is reached when the satisfaction gained from what is produced is equal to that which would have been achieved had the good foregone been produced (Khan 2010). Kapeller & Pü hringer 2010 argue that perfect competition is good for producers and customers, this is because many sellers are most likely to sell at lower prices and purchase at higher prices from producers when there are many of them competing for merchandise and customers.

It has been argued that these conditions do not exist at all in the real world. This is because no matter how similar products are, most of them have a certain level of differentiation. The closest there has been to the actualization of this theory is in the agricultural field where small scale farmers have no power to decide prices because none of them has a big enough market share.

It is also relatively easy to get into small scale farming and also to get out, these two are, however, the only attributes of perfect competitions noticeable and still a closer look at the markets shows that no product is produced solely by small scale farmers, there are always big producers who in many instances are able to determine prices. In instances where small scale producers are predominant, the buyer is only one making the market a monopsony. In order, for the conditions necessary for perfect competition to exist, in the general market, there has to be government regulation in the model of antitrust rules.

In Hayek’ s view, these regulations fundamentally alter the meaning of competition which should be characterized by rivalry.


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