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The Salient Features Of Perfect Competition

Paper Type: Free Essay Subject: Marketing
Wordcount: 5341 words Published: 18th Apr 2017

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In perfect competition there are a large number of buyers and seller, this creates a situation of intense competition in which one buyer of seller cannot impact the supply or demand of a commodity because the supplier or buyer reflects only a small portion of the demand or supply.

Homogenous Goods:-

Each product produced is identical and provides the same utility to the buyer; hence there termed as “homogeneous good”. The buyer usually cannot distinguish one product from the other because of the high consumption and low branding of the product itself.

This means that each product is a perfect substitute for the other products, so there is relatively no difference in price. Any supplier charging a higher price will automatically lose demand of its product as buyers will switch to other substitutes.

Free Exit or Entry of Firms in the Industry:-

In a situation where perfect competition is present, companies are free to enter or exit an industry. There are no trade barriers or government restriction on entry or exit, although companies may incur high capital or need permits in other situations, this is not the case in perfect competition.

Perfect Knowledge:-

In perfect competition there is complete knowledge of prices and production techniques. All the competitors have an equal awareness of the market and technology and so no company can sell cheaper, produce better and more products than any other competitor.

Free Mobility of Factors of Production:-

Perfectly competitive companies have access to all four factors of production, land, labour, capital and enterprise, without hindrance. They have access to resources of their liking and there will and in accordance with their operations.


• There is no market leader in price; hence there is little or no chance of price wars.

• There is no monopoly in the market hence products are cheap.

• As there are no barriers and there is homogeneity in goods and the way they are produced, anyone can easily enter or exit the industry without much hindrance.


• Profit margins are usually low and return on capital is minimal.

• There is a lack of variety and products are not usually customizable

• There is a lack in new variety and design and hence products change very little over time.

• Unequal distribution of goods & income.

• Externalities e.g. Pollution

Automobile Market:-

Although perfect competition cannot be possible as it is idealistic, but near to perfect competition industries do occur. We shall discuss the automobile industry in Pakistan. All those companies that provide spares and locally assembledmanufactured cars are a part of the automobile industry of Pakistan, Toyota, Honda, Suzuki, Mitsubishi Hyundai etc to name few.

Similarities of Automobile Market:-

As in perfect competition there is no asymmetric information i.e. the prices of the vehicles, their performance, their specifications and their availability at dealers is known to all. There is a huge demand for vehicles and so there are a huge amount of dealers spread throughout Pakistan. As nothing is hidden from the customer it is safe to assume that there is perfect knowledge in the market. Perfect knowledge is a key ingredient for perfect competition, reflecting that automobile industry is near-perfect competition.

Differences of Automobile Market:-

There are a number of differences which does not reflect upon perfectly competitive industries

• There is no ‘homogeneity” in goods, there are different brands with different specifications and different prices.

• The industry is capital intensive plus there is a requirement for government licensing which are barriers which are not part of a perfectly competitive environment.

P8:- Discuss the relationship between market forces and organizational response (for market forces consider the course content). Give at least two examples of market forces and organizational response (you should give examples from the local market).

Market Forces and Organizational Response:-

The numbers of market forces in a market are:

• Demand

• Elasticity

• Issues relating to Supply

• Cost Structure

• Economies of Scale

• Supply

• The Labor Market

• The Impact of Technology

• The Competitive Advantage


It is the ability and the willingness of a group of consumers who will buy or own a particular product or commodity at a certain price at a certain point in time.Some factors affecting demand are.


A cellular phone such as Nokia will have high demand if the price is acceptable as low and if its price becomes high its demand will fall. But if the price falls considerably there is a limit to which demand will increase. Market saturation and the availability of consumers will affect the demand. Chinese replicas of Nokia are cheap but low branding and preference keeps their demand low.


Although the demand for cell phones is available in across all age groups but is amongst the highest in teenagers and youngsters.


Nokia has other competitors such as Sony Ericsson and Samsung, although they are not perfect substitutes as each company provide different specification at different prices, but at change in price, positive or negative, will affect the demand for Nokia cell phones in opposite manner.

The level of Incomes:-

As the spending ability of people increases so will their need for spending of higher end cell phones increase. Higher incomes might cause a switch of consumers to high end cell phones such as black berry and android based cell phones. At the other extreme a decrease in income might cause consumers to switch to cheaper Chinese replicas.

Complementary goods:-

If the price of Nokia cell phones increase so will the price of complimentary goods such as headphones and chargers increase and vice versa

The Impact of Technology:-

There is a greater impact of technology on the business of cell phones. It affects the business in the following way:-

Types of Product:-

Cell phones today are made from cutting edge technologies and the pace of their development is very fast, research and development costs are high but because as production techniques are enhanced and technologies become cheaper so a particular cell phone becomes cheaper and new cell phone models will be highly priced.

Central Computerized System:-

A communication has globalized, boundaries have been removed and with new Information technologies coupled with the web has helped streamline the way company information is transmitted and perceived, helping in effectively manage and provide up-to-date support on products and bridge business to business and business to consumer gaps.

Delivery of Products:-

The ability to effectively provide products to even remote areas with minimal expense has become key to placement and product availability ensuring that the company’s product is available to a larger audience.

Availability of Goods:-

The ability to manage the flow of goods to where they are needed and the use of automation techniques such as electronic inventories has helped remove the hassle of renewing order. The supplier is up-to-date on the retailer’s stock and so can provide goods at a moment notice.

Quality of Product:-

As discussed earlier cell phone technologies are constantly updated and so the product achieves very high standard of quality and utility. There is constant improvement with every new model.

P9:- Discuss the major competitive strategies adopted by organizations against their competitors. Discuss how does the organization discussed in P8 is competing (what are their strategies) against their competitors.

Competitive Strategies:-

There are basically 3 types of competitive strategies:

Pricing Strategy:-

The most basic strategy of business is to provide goods at cut throat prices giving the competition a run for their money by being the cheapest option in the market. Thi way they can secure a larger share of demand for their product in the market and possibly remove and “kill off” other competitors. Hi is usually practiced by companies which have ability to achieve a very highly efficient economy of scale operation model or simply with large amounts of capital.

Differentiation Strategy:-

The company aim to provide a product that is different and yet highly competitive in the market, that is either promoting and placing the product in such a way that appeals to the consumer (branding) or buy having variety in looks, technology, shape, size etc. in the same class and product.

Segmentation strategy:-

The ability of a company to identify and then customize its product for a particular niche is segmentation strategy. Here a company will provide a product in accordance to the requirements and needs of a particular area, income class, age, gender, etc. and then provide them with the product. This “rifle” approach helps companies achieve the optimum supply and demand production.

Strategies followed by Samsung Company:-

Differentiation Strategy:-

Samsung in Pakistan have differentiated themselves from their competitors by providing not only the largest variety of cell phone but also their cell phones are marketed as the best value for money in reliability, availability of peripherals (chargers, headphones etc.) and re-sale as opposed to that of Sony Ericsson which markets it technology but are perceived as fragile cell phones.

Segmentation strategy:-

Samsung provides one of the largest varieties of cell phones which can be classified in to one of many categories intended for different kinds of users. There are both cheap cell phones and high end cell phone for different income classes and there are categories of business class cell phones. Such as the E-series and the high end smart phones the N-series. The new C-series are intended for the younger generation with either dual SIM options or social networking cell phone options.

P10: Discuss the importance of international trade, economic integration and global markets to Pakistani business organizations.

International trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). An import is the purchase of a good or service made overseas. An export is the sale of a good or service overseas. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders and would all be much poorer. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture.

For an individual company, exporting to overseas markets can be attractive for a number of reasons.

• Overseas markets represent new market segments.

• The nature of a firm’s product may require an organization to become active in an overseas market.

• Some goods and services are highly specialized and the domestic market is too small to allow economies of scale to be exploited.

• Saturation of its domestic market can force an organization to seek overseas markets.

Importance of international trade in a countries development.

• Cultural convergence that has resulted from improved communications.

• Goods and services are traded to exploit the concept of comparative cost advantage

• The removal of many restrictions on international trade.

• Increasing household disposable incomes results in greater consumption of many categories of luxuries, such as overseas travel, which can only be provided by overseas suppliers.

Ways of going International:

A new foreign market represents both a potential opportunity and a risk to on organization. A company’s market entry strategy should aim to balance these two elements. There are a number of entry strategies that a firm can adopt in order to develop international markets and these include:

• Discover why going global is important. The potential of overseas markets – through exporting, importing or outsourcing – remains largely untapped, even among the world’s most prosperous nations. In the United States, for example, only 10 percent of all businesses export, and most export to only one country. Yet, 95 percent of the world’s population lives outside the United States. Thus, current exporters could reap higher profits simply by selling to additional countries.

• Build your foundations. Entering the global market is not a lifestyle; it’s a “mind-style.” You have to have a positive attitude and an open mind. Once you understand this, you can develop and indulge in a powerful worldview – you’re prerequisite to taking on the world, and your foundation for starting and running a profitable global business.

• Map out your global journey. First, get organized. Explore your territory, conduct market research, choose a market, segment your product and market, keep yourself on track and create a thoughtfully crafted strategy that forces you to take action. Then, make sure your product or service will stand on its merits globally.

• Develop sales and distribution. Finding customers for your products can be accomplished through a range of programs (largely government-sponsored) such as trade shows, trade missions, and related trade-networking services. Define your cross-border customer. Make contact, consider low-cost advertising, exhibit at trade fairs and make the customers’ experiences ones they won’t forget. Your objective is to initiate, cultivate, and maintain productive customer relationships and, ultimately, build an enduring global empire with customers for life.

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• Make it happen. Congratulations: You’ve got a customer! You’re ready to follow through, put a deal together, and make it happen. The next steps, I have labeled the six P’s: Price your product. Prepare a quotation. Pick a payment method. Pack it up. Put transportation to work. And plan to document everything. You are now well-positioned to form relationships with the rest of the world.

• Build your business. The relationship between you and your overseas customer shouldn’t end with a sale. If anything, after a sale, the buyer requires more attention. Once you’ve completed the initial transaction, expect to provide a broad spectrum of “free” services to encourage repeat business. I call it the “care and feeding” of customers, which keeps them coming back. Set an unprecedented standard of professionalism. Your customers will be deeply impressed, and they’ll never again want to settle for less.

• Keep learning. That’s what makes life rich, diverse, exciting — and, at times, unnerving. In the fast-changing world of international business, on-the-job education will play an increasingly important part in all our lives. Selling a product or service overseas takes particular sensitivity to the values and concerns of overseas customers. The greater your commitment to expanding your cultural consciousness, the more comfortably and effectively you will function within business and social environments beyond your country’s borders.

• Create your future. As you take your business into the next decade, you’ll find keeping ahead of the competition takes more than getting your product into export markets. You will also need to use the Internet to boost your global reach. The Internet’s virtually instantaneous worldwide communications capabilities can transform your small business into a global powerhouse and enable you to find customers fast. If you’re not already online, get connected. Create a web site. Build a blog. Get a free email account. Explore eBay. Join social and professional networks and research everything thoroughly. You’ll be on your way to a competitive edge in the marketplace.

• Manifest new frontiers. Over the next five years, trade barriers will continue to fall, and fresh opportunities will open. Stake a claim to your share of the action now. Countries realize they need one another to survive economically. So seek out alliances, partnerships, joint ventures and new markets in economies unlike your own. New and experienced global business enthusiasts alike will benefit from reaching out to the world.

• Reap the rewards of global trade. Sure, there will be additional sales, profits and market opportunities. But first, expect to find yourself reinventing and redefining the way you do business. Global customers are the most demanding customers you will ever have. To service them, be smarter and produce faster than ever to keep up. Will it be worth it? You bet. And never forget that you are the most important and valuable business asset you have, and the human touch is even more crucial in our age of cyber-technology.

P11:- Discuss how the policies/recommendations (any two policies) of SAARC will affect the performance of a Pakistani business. (Discuss both the positive and negative impacts). The lecturer will provide you with guidance about the policies to be considered.


1. Zaria Taraqiati Bank Limited Pakistan (ZTBLP):-

Zaria Taraqiati Bank Limited is the premier financial institution geared towards the development of agriculture sector through provision of financial and technical services to the farmers and is an agriculture development bank of Pakistan. The goal of ZTBLP is to bring up agriculture and rural sector by increasing farm productivity and raising income generating capacity of farmer society. When SAARC poverty alleviation policy will be implemented, more emphasis will be given to ZTBLP and it will be much stronger backed by the SAARC counties in order to improve the living standards of the poor people. The funds given by SAARC countries will be distributed among ZTBLP and the organizations of same nature. Policy of ZTBLP will be affected by this and ZTBLP will work more efficiently due to the availability of funds.

2. Dosti Foundation:-

The agencies were founded in response to growing trend in Pakistan: very young children scavenging through garbage, begging on the streets, working for long hours in auto repair shops, when they should have been in school. DOSTI is more emphasized on improving the lives of these children and their communities through education. DOSTI foundation sponsor schools and vocational center, as well as help projects. DOSTI brings educational resources where, too often, education is considered an impossible luxury, especially for girls.

DOSTI is introduced dozen of schools in NWFP and has served more than 10,000 children in a little or more than decades. The majority of these students are girls. DOSTI foundation will have an impact on poverty alleviation policy. It is a private organization but is well established. Government and SAARC member countries can fund such type of organizations because DOSTI foundation is in a better position to identify those areas, where problems are accruing.


Quarter of the children in the world lives in South Asia and many of them need to be given proper assistance in order to protect, facilitated and provide them with their due rights.

• All the SAARC countries shall protect the child against all forms of abuse and exploitation prejudicial to any aspects of the child’s well-being.

• All the countries shall take necessary actions to implement effectively the SAARC Convention on Regional Arrangements for the Promotion of Child Welfare and to fight and contain all offences against the person, dignity and the life of the child.

• The child shall enjoy special protection, and shall be given opportunities and facilities, by law and by other means, to enable him or her to develop its full potential physically, mentally, emotionally, morally, spiritually, socially and culturally in a healthy and normal manner and in conditions of freedom and dignity.

• All the SAARC countries shall take appropriate measures for the re-habilitation of street children, orphaned, displaced and abandoned children, and children affected by armed conflict.

• All the SAARC countries should promise that a physically, mentally, emotionally or socially disadvantaged child shall be given the special treatment, education and care required by his or her particular condition.

Impact of Regional Arrangement for promotion of child welfare in South Asia:-

• 3.3 million Children are involved in child labor in Pakistan.

• The children working as laborers get low wages but are over worked.

• Majority of the child workers is concentrated in the invisible sector of the economy and thus remains hidden from the statistical and planning procedures.

• The children working on agricultural farms have never been given any consideration for their welfare.

• The child workers do not enjoy basic amenities of life.

The following strategy should be given to all SAARC countries in order to stop the misuse of children in South Asia:

â- Progressive elimination of child labor from all sectors of the employment.

â- Regular monitoring and inspection system to supervise the implementation of SAARC plan.

â- Prevention of entry into labor market of underage children by offering alternative of education.

â- Ensuring at least primary education and skill training to the children should be the target.

â- In order to prevent exploitation of the child labor in non-formal sector, Employment of Children Act (ECA), 1991 and Bonded Labor System (Abolition) Act, 1992 of Pakistan should be implemented in all SAARC countries.

3. Habitat Integrated Pakistan (HIT):-

HIT is a nonprofit organization, which works for poverty by establishing an educational school for rural and poor individual. Habitat integrated Pakistan is products of gypsy woman Punjab Pakistan.

These women are getting trained by gypsy woman, in the field of wallets, eye glasses case, pouch cloth bags, scarf, cushion covers, greeting cards, glass mats, shirts, table mat, sweaters, mobile bag, marble tortoise, since 1999.

For the training of urban, rural and disable women it is tried hard to establish a proper work shop by Habitat Integrated Pakistan. These women in camps are residing to provide and train these women at their houses. For this HIT need some financial assistance to establish a proper training institution, where these women can learn for making the crafts. SAARC countries will generate funds which will distribute among different organization like HIT.

The impact of regional arrangements for the promotion of child welfare in South Asia will be on many organizations and businesses such as:

1. Child Care Foundation (CCF):-

CCF is a national NGO has been established with the collaboration of Export Promotion Bureau, which aims at establishing and maintaining an indigenous monitoring system for progressive elimination, rehabilitation and prevention of child labor. SAARC and Pakistan government will defiantly appreciate and support CCF for its welfare of child in Pakistan consequently CCF will be benefiting a lot

2. Football industry in Pakistan:-

The impact of SAARC agreement for the promotion of child welfare on football industry in Pakistan will be very negative. Pakistan is one of the largest football manufacturing countries. It is unfortunate that there are many children involved in the production of footballs. Children are forced to work in order to earn money for their families. According to the research 81% of the children who are involved in the production of footballs are doing it for the sake of getting basic requirements of life such as; food, clothing and shelter.

According to the SAARC regional child welfare policy, child labor is strictly prohibited. This will deeply affect the football industry of Pakistan and there will be a huge loss. Many families will be affected, as their children will be unemployed.

3. Child Labor Education Program (CLEP) in Sindh:-

CLEP is an ongoing project in Sindh working for educating of child labor. This organization is currently supported by SAARC, Pakistan government and NGO’s in near future CLEP will be getting a lot of funds from different sources and will be benefiting from all.

4. Pakistan Bait-ul-Mal Schools for Rehabilitation of Child Labor:-

Most of the SAARC population is Muslim Bait Ul Mal School is relating itself to Islamic ways of saving children rights; consequently this organization will be having funds from almost all SAARC countries plus Pakistan government.

P12: Discuss what can be the implications for Pakistan of entering the Single Currency Market. Discuss from the point of view of the Stakeholders involved in the business.

SAARC Currency:-

The former Indian Prime Minister Vajpayee, come up with an idea of single currency for SAARC. There were four main arguments in support.

SAARC currency in favor of Pakistan:-

• Pakistan economy will be very positively affected from the SAARC currency. More investment will take place and the economy of Pakistan will increase.

• Pakistan industrial sectors will get benefited a lot from SAARC currency. Imports and exports countries will increases.

• Medical facilities, especially medicine, machine etc. will be imported from India at a very cheap cost. India medicines will be available at a cheap price and economy will be positively affected.


1. As all people have seen Pakistan and India are two big countries and they have fought wars. And then both countries declared nuclear power. India got the strong point as weaken Pakistanis economy and it gets easier with single currency.

2. India has got greater economy and has problems with all neighbor countries and thus will benefit more than any other SAARC country.

3. Central bank only if India effectively controlled that institution’s policies. Under those conditions the smaller SAARC nations are hardly likely to get something out of it.

Changes and opportunities to Pakistani Business of enlargement of SAARC member states:-

SAARC contains of eight members India, Pakistan, Nepal, Sri Lanka, Butane, Maldives, Bangladesh and Afghanistan with the addition of more members into SAARC different business in Pakistan will be affecting positively and negatively following business will be affected by the addition of different countries.


Afghanistan has resulted positive impact in Pakistani business. The businesses which are affected positively are given below.


Afghanistan is a cold country and in winter’s vegetable is not found there. So vegetables exported.


Afghanistan is a dry land with no sea so transportation will be done trough DARA-e- KHAIBER which will increase economy through transport in Pakistan.


Fruits of both the countries are famous all over the world Mangos, Bananas, from Pakistan are exported to Afghanistan similarly Grapes, Black, Cherries, Melons are imported to Pakistan hence both the countries will be growing positively.

Construction material:-

Afghanistan going through a reconstruction process the only country near to Afghanistan having available construction material is Pakistan and Iran but being a member of SAARC Afghanistan will of course import from Pakistan which will grow the Pakistani business.


China got a chance of joining SAARC but they dint join. But with if china would have joined SAARC all the members would have suffer badly because china is one of the supreme power of the world and will badly affect the business whether its technology, agriculture tourism, etc.

China is one of the biggest exporters in the world there are many business which will be facing some problems in Pakistan. The main businesses, which will be affected, are:

ƒ˜ Machinery equipment

ƒ˜ Chemicals

ƒ˜ Electronics

ƒ˜ Footwear

ƒ˜ Automobile

The machinery business will be affected badly, because china produces almost all type of machineries and at very low price. The electronics and automobile business will also be affected because all most all of the automobile and electronic goods produced by china are very cheap, so it’s a biggest threat to businesses in Pakistan.

M4: This will be in continuation of the P7. The student will give his/her judgment (about the market discussed in P7) that what kind of market is it actually. Must give the relevant evidence (features of the market) to prove.

As this is the continuation of the P7 answer. We have already mentioned and discussed the automobile industry in it in respect of the perfect competition. As we have analyzed in our findings that the automobile industry is not a perfect competition, nor is it a pure monopoly. We can say that it is this type of market structure in an industry is or can be known as an imperfect competition. There are two forms of imperfect competition. One is the oligopoly and the other is the monopolistic competition. However in the automobile industry, the monopolistic competition structure is known to be present. Monopolistic competition is a market structure characterized by a large number of relatively small firms. While the goods produced by the firms in the industry are similar, slight differences do often exist. As such, firms that are operating in the monopolistic competition are extremely competitive, however each firm does have a small degree of market control.

There are four well known main characteristics of a monopolistic competition, they are also briefly defined below:

Product differentiation.

They are the goods which are produced by the firms operating in a monopolistically competitive market and are subject to product differentiation. These goods are basically the same, however they have slight differences among them. Product differentiation is usually achieved in one of these three ways:

Physical differences.

This means that the product of one firm is physically different from the product of other


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