Introduction
A perfectly competitive market is commonly characterized by having homogenous product, having the freedom of entry or exit and having a large number of buyers and sellers. According to Mankiw (1998) the perfectly competitive market possesses the following characteristics: (1) many buyers and sellers with no single economic agent influencing the exchange of goods among market participants; (2) a homogenous or standardized product which the individual producers can not alter or differentiate their products to collect higher price; (3) no barriers to movement of firms into or out of the market; (4) perfect information about market conditions that is available to all market participants; and (5) fully defined system of property rights in which ownership of all products and productive resources is assigned.
With the characteristic given, this paper aims to determine the factors that, in most cases, prevent the US economy in achieving perfectly competitive markets.
The US Market
When we look at the US today, it has various companies from different industries: Microsoft, Linux, Dell, IBM, Texas Instrument, Ford Motor, GM and many more. The US market is basically a market of innovation such that when one company offers a new product, others will make their version of that product with newer features or are created to be sold at lower price. However there are industries where perfect competition does not exist.
U.S. has strong regulations on patents, licensing and copyright protection. The country has utility patent which is granted to anyone who invents useful process, machine or any improvement on processes; and design patents which is granted to anyone who create original design (USPTO, 2005). As noted by the OECD (2006) The United States has greater patent protection than most of its trading partners. US government also has restrictions on the number of suppliers such as the New York City’s Taxicab medallion system. These restrictions served as barriers to entry resulting to lesser competition in the market since. An example of an industry affected by government restrictions is the Operating System where Microsoft Corp. seems to monopolize the industry[1] since it was it was the first to create OS.
Another factor that influences perfect competition is the strong brand identity and loyalty of customers. Microsoft is again an example for this because the brand name Microsoft has been very famous that when you say OS it is always followed by “Microsoft”. The US automotive industry is another example; Ford and GM have dominated this industry in the US that although there are entrants such as the Honda and Toyota, Americans are still loyal to Ford and GM.
Conclusion
One of the basic characteristics of perfectly competitive markets is having no barriers to entry but since in the US market, there are existing barriers such as government restrictions and brand loyalty of customers, there are some industries that practice imperfect competition; oligopoly and monopoly types of market exist in such companies that there is a very low threat for new potential entrants. There are still other markets or industries that practice imperfect competition which are not mentioned in this study. However, imperfect competition in these industries might change overtime since companies exert much effort in the research and development aspect of the business which may result to substitute products and break the barriers of new entrants.
References:
Cuellar, S., Is Microsoft a Monopoly? Accessed online on July 3, 2006
<http://www.sonoma.edu/users/c/cuellar/Research/IsMicrosoft.PDF#search=’example%20of%20monopoly%20market’>
Mankiw NG. Principles of economics. Orlando: The Dryden Press; 1998.
OECD, Economic Survey – United States 2004: Product market competition
Accessed online at OECD website on July 3, 2006
<http://www.oecd.org/document/61/0,2340,en_2649_201185_31460861_70867_119663_1_1,00.html>
USPTO, General Information Concerning Patents,
accessed online on July 3, 2006
< http://www.uspto.gov/web/offices/pac/doc/general/index.html#ptsc>
[1] See Cuellar, S., Is Microsoft a Monopoly? <http://www.sonoma.edu/users/c/cuellar/Research/IsMicrosoft.PDF#search=’example%20of%20monopoly%20market’>
Credit:ivythesis.typepad.com
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