DBE: Advantages & Disadvantages of Competition

The advantages of Perfect Competition are:

• Encourages firms to be as efficient as possible

• There is no guarantee that goods produced will be fairly distributed to every member of society

• The production of certain goods may lead to undesirable side effects like pollution

• Industries produce undifferentiated products under perfect competition

The disadvantages of Perfect Competition are:

• Encourages firms to be as efficient as possible

• There is no guarantee that goods produced will be fairly distributed to every member of society

• Production costs being low and firms making normal profit keeps prices at a minimum

• If consumers want change, the resulting price change will lead firms to respond, purely out of self-interest

The advantages of Monopoly are:

• Can be inefficient as there is

  no competition

• Restricting output into the market.

• Restricted choice for consumers.

• They can benefit from economies of scale

The disadvantages of Monopoly are:

• Domestic monopolies can become dominant at home

• They can benefit from economies of scale

• Restricted choice for consumers.

• Monopolies are needed to create dynamic efficiency

  that is technological progressiveness

The advantages of Monopolistic Competition are:

• Less focus given to firms striving to reach optimum efficiency

• Inefficiency for firms assuming profit maximization

• Can generate unnecessary waste

• There are no major barriers to entry

The disadvantages of Monopolistic Competition are:

• Less focus given to firms striving to reach optimum efficiency

• The market is more efficient than a monopoly, but less efficient than perfect competition

• Differentiation creates choice and diversity for consumers

• There are no major barriers to entry

The advantages of Oligopoly are:

• Reduction in consumer choice caused by high concentration of firms in a given industry

• Price stability helps consumers to plan

• Cartel behaviour reduces competition and can lead to higher prices and decreased output

• New firms can be prevented entry into the market due to deliberate barriers to entry

The disadvantages of Oligopoly are:

• Adopt a highly competitive strategy

• Price stability helps consumers to plan

• Cartel behaviour reduces competition and can lead to higher prices and decreased output

• Price stability helps consumers to plan