Has the internet created perfectly competitive markets? Think of eBay, does that software meet the requirements to allow for perfect competition? Certainly large numbers of sellers can reach their buyers online. And entry is simple, all you need to create a listing is a picture, description, and an eBay account and you are off selling.
The consumers are able to easily compare your product with hundreds of other similar ones. You can actually see the price being set with the auctions online. No one individual is able to influence the market price, it is set by supply and demand. Everyone has access to perfect information and can compare products and pricing. This certainly meets the requirements of perfect competition.
But what about profit? In the perfect competition scenario, marginal revenue is equal to marginal cost. In the long run, a perfectly competitive firm’s profits are always equal to zero since profits will continue to allow entry into the market, which will drive price down, which in turn will reduce profits until there are no more to be had.
So, is the internet a completely competitive market? Not quite, but it is the closest example we have in today’s world. Popular examples include agriculture and the stock market. Can you think of another industry that meets all of the requirements of perfect competition?
Sources:
https://monicavendituoli.wordpress.com/the-internet-as-perfectly-competitive-market-and-how-that-affects-consumer-loyalty/
https://monicavendituoli.wordpress.com/conclusion-a-higher-value-placed-on-customer-loyalty/
https://www.selfgrowth.com/articles/internet-a-market-with-perfect-competition
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eBay is a great example of perfect competition. Another example I can think of is foreign exchange markets because there are lots of different firms (or in this case countries) and they are all offering the same good; currency.
ReplyDeleteI don't know if agriculture is considered "perfect competition". The government gives enormous subsidies for farmers to produce certain crops like corn or soy. However, Ebay is a great example, as it treats everyone-both the big sellers and individual sellers- the same.
ReplyDeleteI would say that most "barter" systems, where goods are traded for goods, also also examples of perfect competition, because in every interaction, both sides of it need what they other person is giving, instead of the normal way where only one person needs the good.
ReplyDeleteIncreasingly, the problem with online retail is trust, an often overlooked value implicitly provided by large brands. Consumer electronics on Amazon is a great example. Amazon's marketplace allows firms (primarily in China, in this case) to falsely advertise cheap consumer electronics products and artificially inflate their review score. In a perfectly competitive market, I would know everything about a product before I buy so that I can make an informed, comparative decision. Though a Chinese firm can likely supply me a USB cable for cheaper than anywhere else, I'll still pay extra for the AmazonBasics seal of quality control. Lack of trust makes online products non-identical, and thus the market is further from perfect competition.
ReplyDeleteNo such issue exists in FX or stock markets. The product is actually identical across all buyers/sellers.
Wow, that's so cool. I never really though of Ebay as perfect competition! I know that amazon does take a fee from sellers who choose to sell on Amazon; Ebay probably does too. I wonder how that comes into play here.
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