Question

What is the difference between 'perfectly competitive market structure' and 'competitive market structure under oligopoly'? Which of these two (market structures), in your opinion is more suitable for the growth and development of the Indian economy?

Answer 1

Perfectly competitive market structure refers to that form of the market in which there is a large number of small producers. An individual producer exercises no control over the market. His production is only a small fragment of the total market supply. He exercises no control over price. He can sell any quantity at the given price. The producers earn only normal profits in the long run.
Competitive market structure under oligopoly refers to that form of the market in which there are a few big firms producing a commodity. Each firm has a significant share of the market. Accordingly price and output policy of one firm significantly impacts the price and output policy of the rival firms There is a high degree of interdependence among firms which leads to cut-throat competition. Each firm tries to increase its share of the market through innovative technology and by introducing innovative products in the market.Both these market structures are suitable for the growth and development of the Indian economy. But in different areas of production activity.Perfectly competitive market structure is most suited in the area of retail trade. In fact, already our retail trade is like a perfectly competitive market. Being dominated by a large number of small producers, retail trade in India is generating lots of employment opportunities. We understand how important it is in a country like India which is highly overpopulated and has a huge reserve of employable population.On the other hand, there are certain areas of production which need huge investment and innovative technology. These include automobile industry, civil aviation, software engineering, defence goods industry, and the like. India lacks funds for investment as well as the innovative technology. Accordingly, we have to depend on 'multinational corporations'. These are global enterprises but a few in number. FDI (Foreign Direct Investment) by these enterprises would definitely lead to the emergence of oligopoly market structure. But this is the only way we can achieve growth in such areas of production activity which need high investment and innovative technology.