Perfect Competition

Introduction

A perfect competitive market is hardly found in so many industries. Most scholars argue that this kind of market model does not exist in real world. This might be due to information gap among consumers, some suppliers coalescing to have some control over the market price or inability to find companies offering identical products in the market.

As far as that is concerned, one might recognize that a competitive market structure do exist in Florida (Competition, n.d). In this part of USA, we do find about 70 companies marketing and distributing oil products to the consumers of oil.

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Among these companies are: 76 Lubricants, A Plus Auto Oil Change Etc, Bahamas Miracle Crude Oil, Bulk Cooking Oil Solutions, LLC, Capital Oil & Gas, Genpass Technologies, Longrun Oil Corp, Mr Oil and Oil Lube Express of W Melbourne. Most of these companies do have their own filling stations though they also make distributions of oil to other filling stations they do not own. They all deal in petroleum products (Manta, 2011).

Discussion

The high number of the marketers and distributors of this product indicate that no single company can have control over oil prices. The market forces of demand and supply do set the price. An owner of a filling station or any consumer of the oil product would run away from the distributor who sets high price and buy from the one selling at a lower price.

This means that this industry would at most be earning supernormal profit in the short run but as prices adjust in accordance with the stiff competition in the global market, particularly concerning the price, most probably the price would get to the lowest where firms would be earning normal profit. For example, the price of one gallon of regular unleaded gasoline goes at approximately $3.84. Generally, it is assumed that all firms are price takers.

As movements in prices up and down takes place, some firms do exit from the industry after they fail to keep up with the price and high operating cost. The high number of oil distributers shows that the market is free for any firm to enter while at the same time, is free to exit (Florida, 2011).

This is one industry where products are not different across the firms. For instance, the regular unleaded gasoline is similar to all companies. When it comes to information flow to/from oil distributors, all customers are perceived to have full and equal information about the market although this is not a fact as per this market.

Some companies were seen selling petroleum products at high prices and still customers do buy from them although the information asymmetries does not hold for long. These factors make the market not to be perfectly competitive.

The government seems to have little influence on this market. Apart from taxation of oil firms and control of suppliers in the country, the government does not seem to give much attention to oil prices even after oil prices increased recently. Additionally, the government is not keen on finding other sources of energy and therefore no close substitute to influence the market price of oil (Competition, n.d).

Conclusion

In short, this market does have many features of a perfectly competitive market such as free entry and exit of firms in the industry, sale of homogeneous products, firms taking price set by the market, and consumers having full knowledge of the products and prices charged by all firms. Nevertheless, information gap on oil prices for all the firms that do exist in the industry affirms that this kind market model hardly exist in real world.

References

Competition, (n.d). Perfectly Competitive Markets. Retrieved on June 24, 2011 from http://www.econ.ohio-state.edu/jpeck/H200/EconH200L10.pdf

Florida, (2011). Retail fuel prices fall. Retrieved on June 25, 2011 from: http://www.bizjournals.com/southflorida/news/2011/05/31/retail-fuel-prices-fall.html

Manta, (2011). 70 Oil Marketers and Distributors in Florida. Retrieved on June 25, 2011 from: http://www.manta.com/mb_45_E30AC7N1_10/crude_oil/florida