A perfectly competitive market can be identified as a market characterized with many competitors that are free to enter or leave the industry. An industry that deals in bread production and supply is an example as identified in California in this study. Some of the suppliers of bread in this market are Lotus Bakery in Santa Rosa, Di Stasi in San Jose, Downtown Bakery and Creamery in Healdsburg, Ne-Mo’s Bakery, Inc. among others. There are 21 companies concerned with production and supply of bread in California. Buyers of these products are normally retailers including supermarkets and Kiosks. In addition, individuals also buy directly from these bakeries (Cold Storage, 2010).
This market does have characteristics of perfect competition market to greater percentage because it has many sellers (suppliers) that no firm could dictate the price as consumers/retailers would buy from the firm that offers the bread at the lowest price. Therefore, there is freedom of choosing by any individual of the firm to buy from. This tells us that firms in the market fix prices of their product at the ongoing market rate to be acceptable by buyers. Consequently, the market itself rather than the suppliers determine prices. Buyers of the product are so many. Moreover, they have full information about market of bread.
The second feature appears that every firm is competing for profit, and any firm could be eradicated from the market if it fails to make enough profit to sustain itself in the market. The 21 suppliers show that any firm is free to enter and exit the industry any time it would wish to do so. The other feature that would put a question of whether perfect competitive does exist in real world is about homogeneity of the kind of product offered in the market. It seems rare to find different products produced by different companies that are always similar in every aspect. This is what happens in this market (Competition, n.d).
A loaf of 400 grams seems to be similar but in real sense, they have slight differentiations. It is the aim of every company to make its product look different in the eyes of the consumer in order to generate a competitive advantage over other competitors. Others add spices to have a difference taste. This is always the strategy to make a firm unique and ahead of others in the industry. The basic reason for this is to chase for profit in the market. For instance, let us examine the variety of bread offered in the California bread market: Bonjour Chocolate Chip Loaf, Bonjour Milk Bread, First Choice California Raisin Bread, Gardenia California Raisin, Gardenia Multi Grain Bread, Garedenia Corn Loaf etc are almost similar but in real sense they are slightly differentiated to have a different appearance and taste (Competition, n.d). This means we shall have slight differences in their price. For instance, 400 grams bread such as First Choice California Raisin Bread costs S $ 2.55 while Gardenia Fine Grain Whole meal costs S$ 2.30. This means firm’s maximization on profit in perfect competitive market is all about the revenue margin i.e. difference between cost of production and the selling price. This is the main factor in which products do not seem in entirety look the same, that makes this kind of market not to exist in real world. Others are that some suppliers might coalesce to have control over market price. In addition, there might be gap existing in market information that some suppliers would take advantage of it to exploit consumers (Kwasnicki, n.d.).
Another important factor is about forces of supply and demand of bread in the market. Firms keep on changing price with regard to amount of money consumer is willing to paying. With this movement, firms keep on lowering price as others exit the market after they fail to operate with the ongoing price. At the end, the industry gets to a point it cannot reduce further. At this point, industry will be earning normal profit.
The government seems to interact in this market to some extent. The US government charges tax rate on the price offered. It also ensures the bread is fit for human consumption. However, it does not dictate the price as price is left to be determined by demand and supply curve though tax rate makes the bread appear somewhat expensive.
Cold Storage, (2010). Bread and Cereals. Web.
Competition, (n.d). Perfectly Competitive Markets. Web.
Kwasnicki, W. (n.d.). Monopoly and perfect competition: there are two sides to every coin. Web.