Competition in a Free Market Economy. What is Competition? Competition is the struggle between...
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Transcript of Competition in a Free Market Economy. What is Competition? Competition is the struggle between...
Competition in a Free Market Economy
What is Competition?
Competition is the struggle between buyers and sellers to get the best products at the lowest price
Competition between sellers keeps the cost of production low and the quality of goods higher than they would otherwise be
Buyers compete among themselves to find the best products at the lowest price
Types of Competition
Pure (Perfect) CompetitionThe market condition where there is a large number of sellers that offer very similar items
Characteristics: Usually lots of small firms in market
Supply and demand set prices
Examples:Most agricultural markets
Types of CompetitionMonopolistic Competition
The market condition in which several suppliers offer a similar, yet differentiated, product (mixed between pure competition and true monopoly)Characteristics:
Each independent firm makes decision about price and output, based on cost of production, product and marketUsually many firms that sell similar products, but are differentiated Free entry and exit
Examples:Hotel business Restaurant businessConsumer Services (hairdressing)
Types of CompetitionOligopolies
The market condition in which very few suppliers offer very similar products or services
Characteristics:Few sellers forces them to be aware of one another’s decisions. Often their decision change due to other firms influence.
Products can be homogeneous or differentiated
Usually price setters
Control most of market
Entry is difficult due to government regulations or patents