My Economy Guide continues to provide you with lots of information about the economy , finance and money . In this article, we will talk about the concepts of Perfect Competition, Imperfect Competition, Monopoly and Oligopoly. In addition, in order to understand the markets better, you should read our Supply and Demand in Economy .
Full competition is a concept that is not actually found in real life, but which provides an important framework for economic analysis and assumptions. Perfect competition is a concept that enables us to understand how all businesses in a sector will behave if they have exactly the same conditions. Let’s take a closer look at this concept.We mentioned above that all businesses must have the same conditions for full competition. But what exactly are we talking about? These conditions can generally be divided into four items.
- Manufacturers and consumers have all the information about the products and the market. Shopping is done in a completely logical manner. As we mentioned in our Supply and Demandarticle in the economy , consumers have all the information necessary to maximize their benefits and producers to increase their profits.
- There is no obstacle for entering or leaving the market for businesses.
- All of the producers produce the same goods, and all of their inputs are the same. The outputs of the two different clothing manufacturers are equivalent and have the same resources they need for production.
- There are many manufacturers on the market. No manufacturer can price the good. When placing this product on the market, it has to make pricing at the market price.
As a result of the aforementioned items, all producers in the market have the same pros or cons, thus creating an equal competitive environment. The replacement opportunity for the consumer is high and as a result, demand is flexible. As we mentioned earlier in this article and not actually full competition occurs.
SHORT TERM AND FULL COMPETITION
Short term refers to a period that is not sufficient for the withdrawal or entry of enterprises or firms in a certain sector from the market. While the fixed capital of the firms cannot be changed during this period, their labor force can be changed. Companies that are in full competition in a short-term process may work with loss or continue to develop with profit as a result of changes in demand.
LONG TERM AND FULL COMPETITION
While the short term does not provide enough time for entry and exit, companies may find the opportunity to enter or exit a market in the long run. While a sector with profitability attracts new businesses to the market, a sector with loss forces the producers in the market to leave the market.
We have told you many times that it is not really possible to encounter full competition. However, as a reference, full competition is important.Many firms face some “barriers ulan created by the state as they enter a market and genel entry costs genel in general. So entering a market is not so easy as we have mentioned in the concept of perfect competition.Companies in the market do not produce the same products. At least we can say that they do not produce completely identical products. These companies try to differentiate their products from the competition in the market. At the same time, with these differences, firms have more control over prices.We mentioned the ease of access to information. This concept does not occur fully in real market examples, so access to information is more limited.The resulting competition is incomplete competition .The classification of competition can be considered as follows. If we take this classification system as a bar, there is full competition that does not exist at one end of this bar, and there is monopoly at the other end. Perfect competition and monopoly are the most different and distant concepts. Between the two ends of the bar is monopolistic competition and oligopoly .
Monopolistic competition is similar to full competition in many ways. Access to information is relatively easy, with many buyers and sellers, and barriers to entry and exit are less or at least equal to all sellers. In contrast to full competition in monopolistic competition, products are differentiated by firms, thus reducing the competition and increasing the possibility of impact on prices. An example of this competition is the fast food industry. In this sector, the producers try to differentiate their products and keep them in the sector and those who succeed can offer their products with different prices than the others.
Oligopolies are markets in which a very small number of large companies are superior. Unlike other competitive markets, these large companies in oligopolies can have a far greater impact on prices. Another feature of the oligopolies is that the volume of the companies they own is very large and therefore the disadvantages of the small companies trying to enter these markets are very high. Monopolistic competitive companies, often found in competitive markets, merge with each other over time and the number of companies in the market decreases. Oligopolies are formed by the maturation of these factors and markets.The merger of firms reduces competition. Decrease in competition is not beneficial for the consumer because prices generally increase.The Herfindahl-Hirschman Index is an important criterion for the detection of oligopoly . The lower this index, the more competitive the market. Governments examine this index when auditing mergers.The concentration ratio is also very important in the detection of oligopolies. If the market share of three companies in a market is as high as 80%, then the concentration rate in this market is considered to be quite high, which indicates that the market is an oligopoly. In a market where there is a monopoly, the aggregation rate is 100% and in a fully competitive market it is considered to be 0%.At the same time there is a mutual and dependent relationship between the companies that have these huge market shares. The views of these companies have a great impact on the market and the sector.