Tag: Competition

Perfect Competition or Collusion?

Posted on by Rhys Williams

    I recently interviewed for a Cambridge college as part of the undergrad admissions process and one of the questions I asked was as follows:

    “We have a scenario where two shops (e.g. supermarkets) are selling the same product (e.g. chocolate bar) at the same price, does this necessarily mean that collusion is occurring? What other factors might the authority want information on?”

    I find this to be an interesting question, as there isn’t a right or wrong answer and so it allowed applicants to discuss a wide range of economic phenomena, from market structure to pricing decisions and I wanted to elaborate upon a few of these points here. [...]

    Competition in Professional Business Services markets

    Posted on by Rhys Williams

    In recent work for the European Commission, myself and colleagues have been evaluating competition in the professional business services markets with the aim of identifying which aspects of the sector inhibit effective competition. In this article I will explain a bit about our findings and highlight the different competition concerns and how economic theory is interwoven into this analysis.

    Background

    Firstly, what are professional business services (or PBS for short)? For this study they included accounting, legal, architectural and engineering services. These services are typically known as credence goods, in the sense that consumers often don’t know about expected service quality before they purchase the service and are unlikely to be able to evaluate quality after provision. [...]

    Why is Competition Good?

    Posted on by Rhys Williams

    Firms have to be competitive in order to keep profits up and to remain in business. If they didn’t keep prices low then other firms could enter the market and undercut the incumbent firm, thus taking away its market share and supernormal profit. Alternatively rivals may do the same. These low prices benefit consumers and should result in more consumer surplus. Because prices are lower more of the good is demanded and hence the firm will produce more, this reduces allocative inefficiency as more resources are going towards the production of goods and services demanded by consumers (a definition of allocative efficiency). [...]

    Discuss whether a concentrated market is necessarily anti-competitive

    Posted on by Rhys Williams

    A concentrated market (one in which there is a high value for the n-concentration ratio) is a market in which there are few firms which possess a relatively large market share. This fulfils one of the criterion of an oligopolistic market.

    Because the market consists of only a few firms we may assume that there are economies of scale to be had by producing a large output. Due to this a few large firms will be able to exploit these economies of scale and hence will be operating a lower point on their average cost curve. Due to this they may be able to charge their consumers a lower price and hence may be more competitive than if the market consisted of many firms who couldn’t exploit these economies of scale and hence had higher costs which they had to pass on to consumers in the form of higher prices despite the markets theoretically being more competitive. [...]