How do firms in a perfect competitive market compete?

Watch this thread
nadiakms
Badges: 14
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#1
Report Thread starter 4 years ago
#1
If they can't compete on price and differentiated products what are they really competing on ? Can the firms in pc have different costs? As there's perfect information wouldn't technological knowledge be shared and other firms will simply copy and any supernormal profits (TR-TC) will be competed away . Just confused how firms in a so called 'perfectly COMPETITIVE market' are actually competing . Your help will be appreciated , thank you
0
reply
Palpatined
Badges: 5
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#2
Report 4 years ago
#2
Perfect competition is unlikely to exist in real-world markets. Firms do essentially 'compete' as they have the objective to profit-maximise. Costs can be different, but all firms will make normal profits through (P/AR/MR = AC) in the long run, because if firms are making supernormal profits, new firms are encouraged to enter the market through the profit motive. This causes market supply to shift outwards, reducing the market price until (P2/AR2/,MR2 = AC), as firms are price-takers.
0
reply
nadiakms
Badges: 14
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#3
Report Thread starter 4 years ago
#3
(Original post by Palpatined)
Perfect competition is unlikely to exist in real-world markets. Firms do essentially 'compete' as they have the objective to profit-maximise. Costs can be different, but all firms will make normal profits through (P/AR/MR = AC) in the long run, because if firms are making supernormal profits, new firms are encouraged to enter the market through the profit motive. This causes market supply to shift outwards, reducing the market price until (P2/AR2/,MR2 = AC), as firms are price-takers.
So are you saying in the long run they don't actually 'compete' as supernormal profits are whittled away by other firms entering the market, firms will be making ac=ar ?
0
reply
Palpatined
Badges: 5
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#4
Report 4 years ago
#4
(Original post by nadiakms)
So are you saying in the long run they don't actually 'compete' as supernormal profits are whittled away by other firms entering the market, firms will be making ac=ar ?
Yes, in the long run, firms will always be making normal profit because of that reason. It's not 'competing' as they cannot manipulate price/differentiate their product, and can only hope for profit-maximisation, which always results in normal profits in the long-run.
1
reply
nadiakms
Badges: 14
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#5
Report Thread starter 4 years ago
#5
(Original post by Palpatined)
Yes, in the long run, firms will always be making normal profit because of that reason. It's not 'competing' as they cannot manipulate price/differentiate their product, and can only hope for profit-maximisation, which always results in normal profits in the long-run.
Thank you !
0
reply
Good bloke
Badges: 19
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#6
Report 4 years ago
#6
(Original post by nadiakms)
If they can't compete on price and differentiated products what are they really competing on ?
They can compete by using a superior marketing message. Coca Cola, for instance, have done far better than the vast majority of purveyors of flavoured sugar water, and it all comes back to the brand. It even tastes pretty similar to much of the cheaper competition.
0
reply
Palpatined
Badges: 5
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#7
Report 4 years ago
#7
(Original post by Good bloke)
They can compete by using a superior marketing message. Coca Cola, for instance, have done far better than the vast majority of purveyors of flavoured sugar water, and it all comes back to the brand. It even tastes pretty similar to much of the cheaper competition.
Coca-cola are however, an oligopoly firm. They are not in perfect competition as they have relative price-setting power and have large barriers to entry. Perfect competition results in no product-differentiation and no marketing.
0
reply
Good bloke
Badges: 19
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#8
Report 4 years ago
#8
(Original post by Palpatined)
Coca-cola are however, an oligopoly firm. They are not in perfect competition as they have relative price-setting power and have large barriers to entry. Perfect competition results in no product-differentiation and no marketing.
They didn't when they started, did they? How do you think they got where they are today? Their product is essentially identical to all the competition and they had to compete. They saw off much off the competition over a very long period indeed.
0
reply
Palpatined
Badges: 5
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#9
Report 4 years ago
#9
They didn't when they started, did they? How do you think they got where they are today? Their product is essentially identical to all the competition and they had to compete. They saw off much off the competition over a very long period indeed.
This is only an economic theory that is studied, it isn't applied to the real-world as perfect competition is unlikely to exist in markets now.
0
reply
Good bloke
Badges: 19
Rep:
? You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#10
Report 4 years ago
#10
(Original post by Palpatined)
This is only an economic theory that is studied, it isn't applied to the real-world as perfect competition is unlikely to exist in markets now.
I'm not sure I agree. It certainly did for Coca Cola, and it could easily apply in local markets, between dry cleaners, chip shops or butchers, for instance.
0
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest

How did The Student Room help you with your university application?

Talking to current university students (12)
17.65%
Talking to peers going through the same thing (24)
35.29%
Speaking to student ambassadors from the universities (5)
7.35%
Speaking to staff members from universities (1)
1.47%
Using the personal statement builder, library or helper service (7)
10.29%
Reading articles about what steps to take (14)
20.59%
Learning about/speaking to Student Finance England (2)
2.94%
Something else (tell us in the thread) (3)
4.41%

Watched Threads

View All