Perfect Competition
Day 356, 10:45
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Published in USA 
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by
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by Diogo Sena
Note: I am not an economy expert. I recently learned this new concept of perfect competition, and I found it particularly interesting, and I thought that it would be possible to create that situation in Erepublik.
Perfect competition describes market in which no buyer or seller has market power. Such markets are usually allocatively and productively efficient. In general a perfectly competitive market is characterized by the fact that no single firm has influence on the price of the product it sells. Because the conditions for perfect competition are very strict, it is very difficult to achieve such “model” in real life due to a number of factors.
In this article I will try to show how it is possible to achieve a Perfect Competition in Erepublik.
There are several five main characteristic that a perfect markets need to have:
This means it needs to exist many buyers willing to buy the product at a certain price and many producers with the ability and willingness to provide the product at that price.
Since in Erepublik a unit of Q2 food from company A is exactly equal to a unit of Q2 food from company B, this condition is easily fulfilled.
This would be the main obstacle because you need 20 GOLD to start a Q1 Company. Like this it is not relatively easy to enter or exit as a business as it should be if we were in a perfect competition market. I guess the only way to overcome this would be with the support of governments or loaning agencies.
4 - Consumers have perfect information about the prices all sellers in the market charge so if some firms decide to charge a price higher than the ruling market price, there will be a large substitution effect away from this firm. In Erepublik is easy to citizens to have access to this kind of information.
5 - All firms (industry participants and new entrants) are assumed to have equal access to resources (technology, other factor inputs) and improvements in production technologies achieved by one firm can spill-over to all the other suppliers in the market. Since in Erepublik there is no possible technology evolution it all comes down to the supply of Raw Materials. This can be done by the government. The government would run state companies that would supply all the firms with same amount of raw materials ( enough to meet demand ) at the same price.
6 - Firms Aim to Maximise Profits - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit. I believe every firm aims to maximise profit, the solution to achieve equal marginal costs for all firms would be to set an equal wage for people with the same skill. But we would still have to variables: skill and wellness which influence production.
The importance of perfect competition is that price taking by the firm assures it to maximise profit by choosing the quantity they wish to produce and by controlling the facts of production.
As a consequence of perfect competition there is an inability of any one agent to affect prices ( i.e. – There is a daily demand for 300 food Q1 if the price 50 ( price elasticity enters here ). There are 5 firms in the business. Each of them as the ability to supply 60 units of Q1 food daily. This assures all firms that if they sell each unit at 50 they will empty their stocks and have maximum profit. Like this if firm A lowers their price to 49.99 they will still empty their stock but they won’t maximise profit, which means other firms won’t follow firm A prices ).
In contrast to a monopoly or oligopoly, it is impossible for a firm in perfect competition to earn profit in the long run, which is to say that a firm cannot make any more money than is necessary to cover its economic costs.
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Comments
The reason economics students like erepublic is because its understandable. This is a remarkable contrast to real life economics wherein even the most well connected professor will admit he or she is at best only guessing.
I did learn something from your article though. So. Bonus
Good post. Good concept, but here is where the concept fails when applied to eRepublik: most company owners do not understand economics, or just plain don't care. They will undercut their competitor in an attempt to make the most sales without realizing that they are cutting away from their profits, they will over produce, and they will come from abroad.
And, lastly, this statement alone ruins all chance of perfect competition: "it is impossible for a firm in perfect competition to earn profit in the long run, which is to say that a firm cannot make any more money than is necessary to cover its economic costs."
you got my vote, but not my belief🙂
What you have described is not competition at all. You are essentially proposing the equivalent of the feel good notion that there are no losers in youth sports and that every child is a winner and should receive a trophy even if they don't have any skill. Well guess what, some people are smarter than others and some people are wiser than others. You can never level this playing field no matter how much money or regulation you throw at the problem. All you will accomplish is crippling the true producers of the target economy by throwing the losers a lifeline. It's like spoiling a child their entire life and then not understanding why they value nothing.
I understand that this is only a simulation so it's not like anyone is going to die over this kind of thinking, but it still turns my stomach.
Definitely not feasible, but interesting.
Voted.
perfect competition would imply that the marginal costs are equal to the marginal revenues. Since the marginal costs are different for each company cause of the different workers skills and different salaries the whole theory is not very likely.