Which is best perfect competition or monopoly?
Which is best perfect competition or monopoly?
Perfect competition is a market or industry characterized by a very large number of small firms producing an identical product. None of the firms have the ability to influence price. Instead, the firms are "price takers" in that they can sell all they are able to produce at a given price. There is free mobility of all resources so that the conditions of entry and exit into and out of the market are very easy. All buyers and producers have complete and perfect knowledge as to present and future prices. The demand for the product is perfectly elastic.
Perfect competition is the easiest of the market structure models to start out with. In perfect competition, we can look at the principles and ideas that cover most aspects of market structure, without adding too much initial complexity. Then we will determine how much output the firm produces, whether the firm should produce that amount of output and whether the firm makes a profit or a loss.
It is difficult to find a market in the world today where there is perfect competition. In perfect competition firms make only normal profit. This means that the profit made from the company is only just greater than the interest that could have been made, had the money been invested. Hence it is just worth the owner staying in the industry.
The perfect competition market must obey some criteria in order for it to be classed as perfect: Both buyers and sellers must be numerous and, relative to the market, sufficiently small that the actions of any one buyer or seller must not have a perceptible effect upon the market; All producers in the market must produce the same product and those made by any producer must be indistinguishable from those made by any other producer; All participants in the market must have perfect knowledge of all prices bid and asked in that market; The factors of production must ...
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The perfect competition market must obey some criteria in order for it to be classed as perfect: Both buyers and sellers must be numerous and, relative to the market, sufficiently small that the actions of any one buyer or seller must not have a perceptible effect upon the market; All producers in the market must produce the same product and those made by any producer must be indistinguishable from those made by any other producer; All participants in the market must have perfect knowledge of all prices bid and asked in that market; The factors of production must be able to flow freely and instantaneously into or out of the market or between one producer and another producer in the market. This implies that there be no transaction costs.
Being a single seller, by itself, is not good, nor evil, it depends on how one obtained that single-seller status. Did one obtain a monopoly by economic competition in the marketplace, or did one obtain it by political pull, i.e., lobbying? If such status is gained by competition in the free-market then the "monopoly", the successful business, is good. If such status is gained by using the government, or Mafia, to force one's competition out of business, then the monopoly is evil. As all political intervention (initiation of force) in the marketplace is outlawed under capitalism, a harmful monopoly under capitalism is impossible. If one considers a monopoly by definition as intrinsically evil, then only "businesses" that obtain their market share by having their competition outlawed can be called a "monopoly".
If any company is a single seller in any industry and starts making profits higher than other industries, due to high prices; it will attract competition into its industry, as other capitalists move their capital from less profitable markets to more profitable ones. If the profits are due to lower production costs, which other companies are unable to match, then the company deserves its profit.
If any business attempts to charge prices higher than the market will bear, he will lose all his business to his competition, since he cannot force his competition out of business. The businessman's power is dollars, not guns. If a business attempts to "corner the market" by charging prices that are too low (i.e., below his variable costs of production), he may drive competitors out of the market temporarily; but, as soon as he raises his prices, new competitors will enter the market.
The only way a company can gain market share by lowering ones prices, is if it can lower its costs of production. If a business can charge the lowest price because it has figured out how to build a better mousetrap (i.e., produce for less), then it deserves whatever market share it can obtain.
Monopolies are not intrinsically evil (big is not inherently evil), nor are monopolies subjectively evil; monopolies are good or evil depending on how they are formed. If formed according to the laws of the free market capitalism they are objectively good. If formed through irrational political policies they are objectively evil. There is no such thing as a profit that is too high or too low. That is, there is no such thing as an "excessive" profit. There is only the profit that men earn.
Market
Structure
Number of
Producers
Unrestricted
Entry and
Exit
Ability to
Set Price
Long-Run
Economic
Profits
Nature of
Product
Perfect
Competition
Very Large
Yes
None
Price Taker
No
Standardized
Monopolistic Competition
Many
Yes
Some
No
Differentiated
After looking at the facts of both monopolies and perfect competition, in my opinion I think that they are both good in different ways, they both have advantages and disadvantages. Although if had to choose one, I think it would have to be a monopoly. A monopoly is a really good idea, so long as it is achieved in the right way.
