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 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 are a large number of enterprises and customers of the good such that the commodity sold by each enterprise is frivolously small compared to the total output of all the enterprises amalgamated. The amount bought by each customer is exceedingly small in comparison to the amount purchased by all the customers together.
  •     Enterprises are free to start or stop manufacturing the goods, i.e., entry and exit are 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.
  •     Customers and enterprises have sufficient knowledge of the output, inputs, and their cost prices.

In this chapter, we will contemplate situations where one or more of these conditions are not content. If presumption (2) relinquishes or drops and becomes difficult for the enterprises to enter a marketplace, then a market place may not have many enterprises.

In the extreme scenario, a marketplace might have only one enterprise. A marketplace with one enterprise and many purchasers is known as a monopoly. A marketplace that has a small number of large enterprises is known as an oligopoly.

If presumption (2) drops, then presumption (1) also drops. Similarly, dropping the presumption that commodities manufactured by an enterprise are incomprehensible from those of other enterprises (assumption 3).

It implies that the commodities manufactured by enterprises are close alternatives but not the perfect alternative for each other. Such marketplaces, where presumptions (1) and (2) may hold good but presumption (3) does not, are known as markets with monopolistic competition.

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