Economic of

Competition
JONATHAN F. OTIC

Presentation Content

In what ways do
competition affects the
decision and action of a
firm? Is it true that
competition
promotes
consumer welfare?

It

is utopian to try to break

up monopolies into even a
few effectively competing
units, because the basic
cause of monopoly is the
law of decreasing cost with
mass production, and in any
case, a few competitors are
not enough to duplicate the
pricing patterns of perfect
competition. What are the

Is it true that oil

product
is
under
oligopolistic industry?
How the price of oil
rises
and
falls
nowadays?

Importance
of
knowing
price

In what ways do the competition

affects the decision and action of
a firm?

Gabay
(2008)
competition is always
part of human activities
and motivations.

In what ways do the competition

affects the decision and action of
a firm?

Competition by Fajardo 1990

Pure

Large numbers of sellers and

buyers in a commodity
Homogeneous (products of
seller are exactly alike)

Perfect

All Pure aspects are present

Plenty of buyers and products
Knowledge on the price and

Presence of Competition
Consumer wanted most

Reasonable
prices
for
producers & consumers
Firms are forced to use the
most efficient or the least
cost
Firms can not afford to
produce inferior goods

Presence of Competition
Consumers look for better
quality
of
products
or
services among competitive
price
Fosters
highly
efficient
allocation
resources,
because businesses and
suppliers seek the further
for own self-interest

Presence of Competition

Employ resources until

extra or marginal costs
of production equal the
price of the production
Not only maximizes
the
incomes
of
producers,
but
also
satisfies consumers

Competition
Promotes
Consumer
Welfare

Consumers will have a lot of

option
Power in the market is
dispersed
There are no barriers to
entry or exit
Firms are price takers
No firm can influence the
price
Products
are
common

Monopolies

Advantages

avoids duplication and hence

wastage of resources.
enjoys economics of scale as it is
the only supplier of product or
service in the market. The benefits
can be passed on to the
consumers.
profits, it can be used for research
and development and to maintain
their status as a monopoly.

Monopolies
Use price discrimination which
benefits the economically weaker
sections of the society. For
example, Indian railways provide
discounts to students travelling
through its network.
Can afford to invest in latest
technology and machinery in order
to be efficient and to avoid
competition.

Monopolies
Disadvantages

Poor level of service.

No consumer sovereignty.
Consumers may be charged
high prices for low quality of
goods and services.
Lack of competition may lead
to low quality and out dated
goods and services.

Oligopolistic Industry
Oligopolies are classified
either
pure
or
differentiated. If products
produced by the various
firms are identical pure
oligopoly is present
Thus, Oil is a product
considered
under
the

Main factors that affect the price

Fundamental

factors
Sentimental factors
Technical factors
Miscellaneous Factor/
Foreign exchange

Price Elasticity
Price elasticity of demand
refers
to
the
relationship
between the price of a product
and the quantity of the product
that
is
demanded
by
consumers.
A product's demand is said to
be elastic if, when the price
goes up, revenues go down. If
the price goes up and revenues

Price Elasticity
Determination of
price policy
Price discrimination
Shifting of tax
burden
Output decisions

Thank you