Toto123
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do you think that uk higher education/tertiary education basically universities can be defined as a perfectly competitive market?
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TeeEff
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(Original post by Toto123)
do you think that uk higher education/tertiary education basically universities can be defined as a perfectly competitive market?
Let's look at what a perfectly competitive market structure involves.

A competitive market will have:
  1. Homogenous units of output
  2. No barriers to entry
  3. Suppliers are profit maximisers and price takers
  4. Only normal profit can be made in the long run, Supernormal profit can be made in the short run

Are all degrees equal? Are there barriers to entry? Are suppliers profit maximisers and price takers? Can they only make normal profit in the long run?

I'd argue that some of these don't hold for universities. There are definitely barriers to entry because universities are regulated and must meet certain standards. The output is also differentiable, otherwise no-one would care about which university they went to (i.e. there are non-pricing factors which can affect the attractiveness of education from a supplier) and would choose the one with the lowest entry requirements (a lower cost of acquiring a degree if you will). With the announcement that certain unis can increase fees in line with inflation if they meet the government's TEF, there's also going to be non-uniform pricing. I'm sure there are lots of other examples.
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Toto123
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But what other examples could there be? I am really confused to be perfectly honest.


(Original post by The Financier)
Let's look at what a perfectly competitive market structure involves.

A competitive market will have:
  1. Homogenous units of output
  2. No barriers to entry
  3. Suppliers are profit maximisers and price takers
  4. Only normal profit can be made in the long run, Supernormal profit can be made in the short run

Are all degrees equal? Are there barriers to entry? Are suppliers profit maximisers and price takers? Can they only make normal profit in the long run?

I'd argue that some of these don't hold for universities. There are definitely barriers to entry because universities are regulated and must meet certain standards. The output is also differentiable, otherwise no-one would care about which university they went to (i.e. there are non-pricing factors which can affect the attractiveness of education from a supplier) and would choose the one with the lowest entry requirements (a lower cost of acquiring a degree if you will). With the announcement that certain unis can increase fees in line with inflation if they meet the government's TEF, there's also going to be non-uniform pricing. I'm sure there are lots of other examples.
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TeeEff
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(Original post by Toto123)
But what other examples could there be? I am really confused to be perfectly honest.
I'm not going to give all of them lol. It's important that you can also do this yourself, otherwise this isn't good preparation for an actual exam.

If some of the criteria for a perfectly competitive market structure aren't satisfied, look at what it does satisfy (i.e.regulations means barriers to entry, which is an aspect of....). You probably won't get a definitive answer for the market structure of higher education, but you should be able to justify your points by simply looking at the features of higher education.
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azizadil1998
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To give you a good way to answer the question -

Look at the main characteristics of perfectly competitive markets;

- No barriers to entry / exit (perfectly contestable)
- Homogeneous goods/services
- Perfect & symmetric knowledge for consumers and producers
- Perfectly elastic demand, 100% price takers
- Many buyers and sellers, each with insignificant market share
- Equal access to resources
- No externalities from production and consumption

Look at the above and evaluate those conditions against what you think the university education market has!

Hope that helps!
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Toto123
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(Original post by azizadil1998)
To give you a good way to answer the question -

Look at the main characteristics of perfectly competitive markets;

- No barriers to entry / exit (perfectly contestable)
- Homogeneous goods/services
- Perfect & symmetric knowledge for consumers and producers
- Perfectly elastic demand, 100% price takers
- Many buyers and sellers, each with insignificant market share
- Equal access to resources
- No externalities from production and consumption

Look at the above and evaluate those conditions against what you think the university education market has!

Hope that helps!


I honestly Have no idea how to apply those characteristics apart from the barriers one. Please help me I'm so confused. I would really appreciate it.
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azizadil1998
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(Original post by Toto123)
I honestly Have no idea how to apply those characteristics apart from the barriers one. Please help me I'm so confused. I would really appreciate it.
Some guy asked the same question so im just copy pasting what i said there lol.

Nowhere near perfectly competitive!

It's not exactly contestable first of all: you need licenses, permits, whatever else you may need for setting up an educational institution! Hiring professors and academics will be hard as the top universities with the most 'market power' are able to get the best ones. So there goes equal access to resources.

There is also the fact that the top universities have recognition, 'brand value' and thus are able to differentiate themselves from other, average universities. So technically the 'goods' - courses are homogeneous but as they have different modules, and are delivered in different ways in each university, it's not homogeneous.

In terms of AR = MR and being a price taker, I suppose the universities are to some extent forced to take market price, although this is mainly down to the government placing price caps on their tuition fees. However, some are even exempt from this if I think their teaching standards or research quality is above a benchmark?

ALSO - there isn't perfect information or knowledge for firms and consumers, for common sense reasons.

In my opinion, the closest you may be able to get to perfectly competitive market is maybe farmers/agriculture or foreign exchange markets, maybe stock markets but again there are strong arguments as to why they aren't.

But, perfect competition is used as a benchmark in theoretical economics to compare against real life markets and see how they can improve or what they 'lack' such as allocative efficiency etc.
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