Effects of Competitive Markets

Topics: Competition, Economics, Perfect competition Pages: 4 (1348 words) Published: February 13, 2011
effects of competitive markets

Economics 131

The degree to which a market or industry can be described as competitive depends in part on how many suppliers are seeking the demand of consumers and the ease with which new businesses can enter and exit a particular market in the long run (Makinaw, 2009). This paper will discuss the characteristics of a competitive market. This paper will also analyze the effects of competition amongst electronic chains with a focus on Circuit City. Competition Defined

Competition is usually thought to improve efficiency and be good for customers. However, if there is too much competition then firms will not make enough profit to conduct research and development which may lead to technological stagnation, to some extent. Competitive markets exist when there is genuine choice for consumers in terms of who supplies the goods and services they demand. Competitive markets are characterized by various forms of price and non-price competition between sellers who are bidding to increase or protect their market share. Types of Competitive Markets

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. In many sectors of the economy markets are best described by the term oligopoly - where a few producers dominate the majority of the market and the industry is highly concentrated. In a duopoly two firms dominate the market although there may be many smaller players in the industry.

A perfectly competitive market has the following characteristics: * There are many buyers and sellers in the market.
* The goods offered by the various sellers are largely the same. * Firms can freely enter or exit...
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