'While some economic theories become outdated, the theory of
perfect competition has become more realistic overtime.'
Discuss whether technological developments, such as the
internet, are making markets more competitive and making
competition theory more realistic. (25 marks)
Perfect competitive markets are based on several assumptions
such as; perfect information, no trade barriers, homogeneous
products etc. these can be considered unrealistic as it is impossible
for all assumptions to exist simultaneously. Through technological
advances, however, markets are indeed becoming more
competitive therefore bringing the perfectly competitive market
theory to become more realistic than before. However technological
development can also contribute to making perfect competitive
theory more unrealistic and due to greater emergence of
monopolistic rms from merging of small rms enables rms to
in uence market prices.
Assumptions of a perfectly competitive market includes; large
number of buyers and sellers, perfect information thus buyers and
sellers are aware about all products and prices, there are no
barriers to entry thus any rm can enter or leave the industry.
However in reality perfect information is almost impossible to
achieve as there will always be imperfect or insuf cient information
available for example due to time lags; additionally it is dif cult to
not have barriers to entry to a market as most rms in reality often
rely on the use of patents and brands, consumer loyalty, etc. thus
creating barriers to entry. However through technological
developments such as the internet it can be argued that some of
these assumptions have become more realistic. The internet, for
example, has enabled consumers to nd a greater amount of
information about goods and services e.g. through search engines
such as Google thus improving information ows therefore closing
the gap between imperfect and perfect information. This has
resulted in more uniform prices. Furthermore the internet has
allowed the removal of trade barriers to a certain degree especially
through the use of sites like eBay or Amazon which enabled the
creation of many small rms to be established for example through
fl
fi fi fi fi fi fl fi fi fi fi
perfect competition has become more realistic overtime.'
Discuss whether technological developments, such as the
internet, are making markets more competitive and making
competition theory more realistic. (25 marks)
Perfect competitive markets are based on several assumptions
such as; perfect information, no trade barriers, homogeneous
products etc. these can be considered unrealistic as it is impossible
for all assumptions to exist simultaneously. Through technological
advances, however, markets are indeed becoming more
competitive therefore bringing the perfectly competitive market
theory to become more realistic than before. However technological
development can also contribute to making perfect competitive
theory more unrealistic and due to greater emergence of
monopolistic rms from merging of small rms enables rms to
in uence market prices.
Assumptions of a perfectly competitive market includes; large
number of buyers and sellers, perfect information thus buyers and
sellers are aware about all products and prices, there are no
barriers to entry thus any rm can enter or leave the industry.
However in reality perfect information is almost impossible to
achieve as there will always be imperfect or insuf cient information
available for example due to time lags; additionally it is dif cult to
not have barriers to entry to a market as most rms in reality often
rely on the use of patents and brands, consumer loyalty, etc. thus
creating barriers to entry. However through technological
developments such as the internet it can be argued that some of
these assumptions have become more realistic. The internet, for
example, has enabled consumers to nd a greater amount of
information about goods and services e.g. through search engines
such as Google thus improving information ows therefore closing
the gap between imperfect and perfect information. This has
resulted in more uniform prices. Furthermore the internet has
allowed the removal of trade barriers to a certain degree especially
through the use of sites like eBay or Amazon which enabled the
creation of many small rms to be established for example through
fl
fi fi fi fi fi fl fi fi fi fi
