Competition Spectrum and Antitrust

The competition spectrum is perfectly designed to aid the economy in analyzing, controlling and manipulating the market-center of economic subsistence. Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly are the four crucial parts in determining what kind of competition currently exists in the market. Competition is what buyers love and what sellers abhor.

Perfect competitive market comprises small firms in which profit is quite low at its average. It happens because sellers have no choice but to become price takers while the selling price is closely link to the cost of production. In the case that one seller raise his/her price above the suggested one, zero or even negative profit is highly probable since one firm is selling exactly the same thing as with the other firms. An advantage with this market is that it is very easy to enter and exit as wished by the entity. Consumers, on the other hand, get to enjoy it when competition exists in the market, especially perfect competitive markets. However, they also have no choice but to accept whatever the price of the market.

Firms in a monopolistic competitive market, characterized by many competitors who compete in a differentiated product, can also avail the free entry and exit of the market. Although products are somewhat differentiated, sometimes, they are not seen as substitutes by consumers because of own tastes and preferences. Almost all retail stores are in this kind of competition. Even if it’s easy to start this business, surviving requires the capacity to persuade customers that the product is one of a kind and better than the others.

In Oligopoly, the market is dominated by a small number of large firms. This is one step closer to monopoly. Interdependence between firms arises since one must take into account the other in terms of pricing and marketing decisions in order to keep in the track. These firms have most of the revenues of the market because the degree of market concentration is extremely high.

If the market has merely one seller, and this seller controls and manipulates the price, one is lucky to receive the title of monopolistic power. It is a total absence of competition, which frequently ends in high prices even if the product is inferior. Patents on new inventions give a barrier for others to enter the market. Also, mergers of large companies often produce monopoly over the market. Natural monopoly is the worst case of monopoly. One firm has a tremendous cost advantage over potential competitors since it creates an “economies of scale.” Water and electricity companies display a perfect example since it is very costly to build networks over the whole country. Therefore, it is very impractical for potential competitors to make capital investment in this kind of market.

Antitrust also called as anti-monopoly or competition law, is a policy or a law defined differently by each country or state to regulate and protect the free market in terms of the welfare of the majority. The enactment of this law is very essential to prevent abuses and unjust overpricing of a giant single firm. It includes supervising the mergers and acquisitions of large companies. It is very important to know how much competition exists in the market to be able to make the right decisions. There are different methods used like the 4-firm concentration ratio and the Herfindahl-Hirschman Index to determine the concentration of the market in terms of possible existence of monopoly. Prohibiting practices and other agreements of various firms can promote just living and preclude unfair competition.