Factors That Prevent Perfectly Competitive Markets in the United States Term Paper

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Prevent Competitive Markets in the United States

The United States follows a system of "free market economy" in which most businesses are privately owned and where individual producers and consumers determine the kinds of goods and services produced as well as the prices of such products. Competition is a key factor in market economies as it keeps the prices of products in check, forces the competitors to enhance the efficiency of their production process, and drives the inefficient producers out of the market. However, "perfectly competitive market" is largely a theoretical economic concept which does not exist in any country and most countries, including the U.S., follow a system of mixed economy. In such 'mixed economies,' there are several factors which prevent the existence of a perfectly competitive market and the U.S. is no exception to this rule. In this paper, we shall discuss some of the factors that work against competition in the U.S., besides examining the factors inherent in a perfectly competitive market.

Factors that Support Perfectly Competitive Markets

Although rarely possible in practice, the concept of perfect competition is used by economists as an "ideal" benchmark for evaluating the performance of real-life markets. It is generally agreed that the factors necessary for the existence of such a market are:

large number of relatively small buyers and sellers, each acting independently.

The product is homogeneous, i.e., the firms in the market offer a uniform good or service for sale.

There is freedom of entry into and exit from the market and there are no barriers.

Market participants have full knowledge of the economic and technical data relevant to their decision making, i.e., all buyers and sellers at all times know the prices of all other buyers and sellers.

The large number of small buyers and sellers ensure that the power to influence the behavior of the market is sufficiently dispersed and no single person or group can dictate the terms on which the exchange of goods and services takes place.

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It is theorized that 'perfect competition' ensures the production of goods and services most efficiently, i.e., at the lowest possible price and cost -- thus benefiting the consumers and the society as a whole.

Interfering Factors

Several 'interfering factors' exist in real life situations that prevent markets from being 'perfectly competitive.' These include the non-existence of the factors necessary for perfect competition. For example, in some markets there may be only one producer supplying a particular product leading to a 'monopoly' while others may be dominated by a handful of major suppliers. Absence of information about the prices and qualities offered by competing sellers and misleading (or false information) as providing by commercial advertising may also lead to non-competitive markets. Other interfering factors that may create distortions in markets include government interference, and attachment of consumers to specific suppliers because of proximity, habit, reliability, quality, and 'consumer loyalty.'

Factors Affecting Competition in the U.S.

The United States was created on the principle of 'individual freedom.' Hence, there is great emphasis in the country about economic freedom too and a corresponding belief in the virtues of a free market economy. While this has given rise to a freer economy than most other parts of the world, including Europe, there are still factors that prevent a perfectly competitive market.

Monopolies

Although pure monpolies, i.e., a single firm in an industry, are rare in the U.S. economy, there are several public utilities providing goods and services in the water, power, and transport sectors that are essentially 'monopolies.'

After the passing of the Sherman Anti-Trust Law in 1890, all….....

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