Imperfect Competition Case Study

a.

I strongly agree, as the market is very essential in meeting the basic needs of individuals in every society. According to Begg et al (2003) A market is a process by which individual and households’ decisions about consumption of goods and services, firms’ decisions on what, how and to produce and workers decisions about how much and for whom to work are all reconciled by adjustment of prices. “. The market is very important as it is the only medium through which individuals (buyers and sellers) can communicate to get they want. Due to the increasing unlimited wants of society online markets have been created to facilitate easier access to goods and services without physical contact between buyer and seller. Without a functioning market

The individual firms have some control over price. They exercise market power by having the ability to raise prices above the marginal cost without it having any effect on demand for their goods and services, which can eventually lead to inefficiency. In the real world it is impossible to achieve perfect competition so most markets exhibit characteristics of imperfect competition. Examples of imperfect competition include: oligopoly and monopoly.

d.

According to Government can attempt to inject competition into the supply of gas to the consumers through the following ways

- They can restrict the behavior of already established firms through to prevent them from using their market dominance and brand loyalty in the market as an entry barrier for upcoming firms.

- Franchising is also another way of increasing of competition. It is the practice of leasing for a period of time the right to use a firm’s brand and business model. Franchises are very competitive as companies put in competitive bids in terms of price and quality of goods

The lack of transparency on price and sales makes it more difficult to sustain collusion. If firms do not adhere to individual prices it is harder to detect deviation and punish it.

Tacit collusion It is an illegal agreement thus the absence of a written agreement. When, firms that are competing do not want to engage in competitive behavior such as cutting the price, advertisements and promotion they come up with unwritten rules of collusive behavior such as: price leadership. A price leader then emerges setting a general industry price high enough that the least cost-efficient firm in the market may earn some return above the competitive level.

According to Riley (2002) tacit collusion is likely to occur when firms want to to minimize competitive response in order to avoid price wars leading to a loss. Also it is often observed that when a few large firms dominate a market, there is always the potential for businesses to want to reduce uncertainty and risks therefore engaging in some form of collusive behavior and this makes the existing firms to engage in price fixing