competitive market

a bit about the competitive market

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Competitive Market
Competitive market
Official definition: A competitive market is a form of imperfect
competition where a large number of small firms sell products that are
differentiated from one another, i.e. are similar with differences being
things such as branding.
A type of competition within an industry where:
1. All firms produce similar yet not exactly the same products.
2. All firms are able to enter the industry if the profits are attractive.
3. All firms aim to maximise profit.
4. All firms have some market power, which means all have an equal
chance of getting customers.
It is a more realistic model of firms in the real world.
There are no barriers to entry and abnormal profits can only be made in
the short run.
Examples of this type of market structure
Pubs, clubs and hotels in city centres
Chip shops
Clothes and shoes shops
Estate agents
Local builders, plumbers and other trades
Characteristics of this type of market
It has some similar characteristics to perfect competition and monopoly.
There are a relatively large number of buyers and sellers
Firms sell differentiated products: similar but exact, the more similar
the products the more elastic the demand curve
There is freedom of entry and exit of the market, there are no
barriers to entry
The buyers and sellers have imperfect knowledge of the market
Profits in this type of market
In the short run it is possible for the firm to make abnormal profits.

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The freedom of entry and exit means that the firm will only be able to
make normal profits in the long run.…read more

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