Question

Some firms and their products face intensively competitive markets while other firms and their products have little to no effective competition. Explain why this condition may exist, which economic models describe both situations, and give examples to support your answer.

Answer 1

In economics there are various types of markets, like perfect competition, oligopoly, monopoly etc.

perfect Competition

Perfect competition is a market system characterised by many different buyers and sellers. In the classic theoretical definition of perfect competition, there are an infinite number of buyers and sellers. With so many market players, it is impossible for any one participant to alter the prevailing price in the market. If they attempt to do so, buyers and sellers have infinite alternatives to pursue. Hence the firms operating in Perfect competition face intensively competitve market.

Example: packaged food, incase X increases its price then it would effect its market share.

while others must be operating in Monopoly or oligopoly, where the number of firms entering in the competition are less, hence they do not face such competition.

Example : Heavy metal industry.