Non Competitive Markets

What are non competitive markets?

We can recollect that perfect competition is a market substructure where both customers and enterprises are price takers. The trait of the enterprise in such circumstances was explained in the Chapter 4 – The Theory Of The Firm Under Perfect Competition. We can discuss, that the perfect competition market substructure is approximated by a market fulfilling the following conditions:

  • There exists a large number of enterprises and customers of the good, such that the commodity sold by each enterprise is frivolouslysmall compared to the total output of all the enterprises amalgamated, and the amount bought by each customer is exceedingly small in comparison to the amount purchased by all customers together
  • Enterprises are free to start manufacturing the good or to stop manufacturing; i.e., entry and exit is free
  • The output manufactured by each enterprise in the industry is incomprehensible from the others and the output of any other industry cannot alternate this output
  • Customers and enterprises have apt knowledge of the output, inputs and their cost prices

In this chapter, we will contemplate situations where 1 or more of these conditions are not contented. If presumption (2) is relinquished or dropped, and it becomes tough for the enterprises to enter a market place, then a market place may not have many enterprises. In the extreme scenario, a market place might have only 1 enterprise. Such a market place, where there is 1 enterprise and many purchasers is known as monopoly. A market place that has a small number of large enterprises is known as an oligopoly. Pay attention, that dropping presumption (2) leads to dropping presumption (1) as well. Similarly, dropping the presumption that commodities manufactured by an enterprise are incomprehensible from those of other enterprises (assumption 3) implies that commodities manufactured by enterprises are close alternatives, but not perfect alternative for each other. Such marketplaces, where presumptions (1) and (2) may hold good, but (3) does not hold good and they are known as markets with monopolistic competition.

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