1. Perfect Competition is a model of which examples are few and far between; yet

Question

1. Perfect Competition is a model of which examples are few and far between; yet economists love to discuss this model. Explain why.
2. With at least one example, discuss how an imperfectly competitive firm resorts to price discrimination to maximize its profits.
3. One of the criticisms of oligopolies is the adverse impacts these firms have on income distribution. Do you believe that is a valid criticism? Discuss with appropriate examples.

Any help answering these discussion questions would be greatly appreciated!! :)

Explanation / Answer

1)

Perfect competition is a concept used to explain some economic concepts, but it does not exist in real life anywhere. What does exits is a near perfect competition. Monopoly is, in a way, the opposite of perfect condition, in which a single firm or supplier has complete control over market prices and supplies. Oligiopoly is some thing in between perfect competition, where a few suppliers have some control over the market prices and supplies. However. this control is not complete control as enjoyed by monopolies.

I am not aware of a concept like "diopoly". Perhaps, it should have been spelt as duopoly, which refers to a special case of oligopoly with exactly two dominant suppliers in a market.

I am giving below examples of each of these types of market structures.

Situations like perfect market exists for markets for most of unbranded staple goods such as food grain and vegetables. However it should be noted that there is a trend of branding more and more of such goods also, and in this ways making their markets become more and more like oligopolistic markets.

Oligopolistic markets are most common form of markets we get to see today. One of the most fierce oligopolistic competition exists in the automobile industry across the world.

Duopolistic market with exactly two suppliers is not very common. However, there are number of products that have two dominant suppliers plus a few smaller ones. For example, in aerated soft drinks market, Coca Cola and Pepsi represent two dominant suppliers in many countries.

True Monopoly generally exist only in government controlled markets. For example provision of civic services such as sewage disposal is generally monopoly of local self government bodies such as municipal corporations. Railways is a government monopoly in India.

Monopoly in private business are rather rare, and even then they only approach monopolistic power bur are not perfect monopolies. As a matter of fact governments in many countries have special provisions to control monopolistic operation. For example, Microsoft which is considered a monopoly for operating system and some other software for personal computers is facing many litigation on the charge of following monopolistic practices.

Some times very small businesses are also able to enjoy monopolistic power because of their location and reputation. A hair stylist or fashion designer may enjoy such high reputation that many rich and the famous insist on using his or services. Also, a retail store with no other store in vicinity may enjoy a monopolistic advantage in that locality.

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