Q:

What are disadvantages of perfect competition?

A:

Quick Answer

The disadvantages of perfect competition are no scope for economies of scale, lack of product differentiation, reduced research and development expenditures, reduced incentive to develop new technology and the potential for market failure. Perfect competition is largely a theoretical concept.

Continue Reading

Full Answer

Perfect competition is an economic market structure characterized by numerous small firms that have no individual control over price, no barriers to entry or exit, perfect information among market participants and the absence of product differentiation. Markets for agricultural products and commodities are the closest real world examples of perfect competition.

Because a perfectly competitive market is comprised of numerous small firms, economies of scale that benefit larger firms are nonexistent. A firm that grew much larger than its competitors would incur fixed costs that would make it financially unfeasible. Perfectly competitive markets also result in dull, homogeneous products because a seller has no incentive to differentiate his product, as everyone is selling the same thing: rice is rice, and iron is iron. Homogeneity reduces the incentive to invest in research and development, as a firm is unwilling to invest resources in activities that, because of perfect knowledge, will benefit the entire industry. Finally, absent government intervention, perfectly competitive markets are prone to market failure when impacted by externalities such as bad weather or supply shocks.

Learn more about Business Resources

Related Questions

  • Q:

    What are some common complaints about the Melaleuca business opportunity?

    A:

    Common complaints about the Melaleuca company and its business opportunities include a failure to clearly explain the process for earning revenue, a lack of information regarding product pricing and a failure to deliver products in a timely fashion. Other complaints focus on an inability to easily cancel memberships or subscriptions with the company and a failure to process payments correctly.

    Full Answer >
    Filed Under:
  • Q:

    What is an effective bakery business plan?

    A:

    According to Inc., an effective bakery business plan includes a market study with data on the bakery’s targeted customer base, data on product sales in the market area, information about competitors, sales predictions and how the bakery plans to stand out from the competition. An effective bakery business plan should also include physical concepts with information, such as space and equipment required for the bakery.

    Full Answer >
    Filed Under:
  • Q:

    What are the pros and cons of mergers?

    A:

    The pros of business mergers include factors such as monopoly regulation, research and development, duplication avoidance and network economies, while the cons include factors such as higher prices, less choice and job losses, according to Tejvan Pettinger at Economics Help. Depending upon the scale, business mergers tend to help top executives and shareholders, but consumers and employees tend to suffer most of the cons. However, this depends on each individual merger.

    Full Answer >
    Filed Under:
  • Q:

    What is polycentric orientation?

    A:

    Polycentric orientation is the practice of decentralizing marketing, research and development of a multinational company to the local market of a country where its products are being sold, according to BizShifts. In this model, a regional manager is employed to market products with awareness to the nuances of the culture instead of attempting to translate a general approach used universally.

    Full Answer >
    Filed Under:

Explore