Conditions for perfect competition. Looking at the airline industry
Discusión y preguntas de este video
- In pretty much all of the vidoes so far we have been asuming an economic ideal.
- And that economic ideal is perfect... perfect competition.
- And perfect competiton is exactly what you think it is... a competition.
- But what I want do in this video is think about in a little bit more exact terms.
- In terms of what are the ground rules we need to have, to really have this ideal perfect competition.
- It's important to realize that there is very few markets
- that are truly perfectly competitive
- and those that are very good for consumers
- but there are, that get very close to being perfectly competitive.
- And if we have time we will discuss those in this video.
- Now to be perfectly competive, you have to have many competitors.
- So one of the first stipulations is
- many players... many... players.
- And they need to be competing for the kind of the same buyer
- and the kind of offering the same thing.
- And so they need to have identical products.
- Remeber this, we are talking about an economic ideal here,
- there is very few markets where the product is absolutely identical or the service is absolutely identical.
- But we are talking about an economic ideal over here.
- The next condition we need is -
- - no barriers to entry -
- no barriers... no barriers to entry.
- So if at any given moment, it looks attractive for other people to go into that market.
- Other people will go into that market and there is nothing that's
- really going to stop them.
- If the firms that are already in the market are already making an economic profit -
- - that means that it's good -
- it's a good option for people to do that.
- You can do better in this market than your opportunity cost.
- And so people will enter into that market.
- In order for this market to be perfectly competitive, we can't have any barriers.
- Nothing stoping those people.
- On top of that there can be
- no advantage for established firms.
- No advantange for existing firms.
- So once someone jumps into the fray
- and they' re going to be and assuming they are somewhat competent,
- they are going to be able to compete on kind of equal terms
- with the people that are already there.
- And at the last one - and this is important -
- is that you have to have really good price information
- that the buyers and the sellers all have to know about each others
- The buyers needs to know all the prices,
- so they can really do good comparison shopping.
- And the sellers needs to know everyones prices,
- so they can really match prices really well.
- So good price information.
- Now there are many different types of markets that
- somewhat approximate perfect competition.
- There are very few that are completely purely perfect competion.
- But one of them does come to mind. One of them does that definitely come to mind,
- is the US airline industry.
- And the US airline and we can think about these bullet points
- and how closely it matches it,
- there are definitely many different airlines,
- they don't offer identical products how do
- i'm sure the airlines would take. Would not agree
- they would say they are differentiating on their service..
- What type of food they give or I guess
- don't give to you.
- How much they are charging for the baggage check in and all the rest.
- But for the most part of consumers it just look like
- they just want an economy class ticket from San Francisco to New York
- and they view them as almost identical products.
- So the airline industry does pretty well in this first point -
- - no barriers to entry -
- Well, there are some barriers to entry in the US airline industry,
- you need a few billion dollars,
- you need to either find or borrow or whatever so you can buy the capital so you can start operating
- planes or I guess you can rent the planes.
- Either way you need a lot of capital to get into this business.
- You need access to airport terminal that you have to lease
- and landing rights and all the rest.
- So there are some barriers to entry,
- but for the most part, at least in the United states, if you are a US,
- a US operator and you know this,
- there are some barriers specific for entry of foreign operators.
- But if you are an US operator and you have the capital,
- you will be able to be the next Virgin America or SWA or Jet blue.
- So for little some barriers to entry, but they are low,
- it is not like the government just saying that no-one else can start a new airlines.
- No advantage for existing airlines.
- Yeah that's somewhat true!
- If i'll start a new airlines tomorrow and it's offering
- comparable rates and comparable service I could imagine people
- would be willing to take to this airlines.
- So the airline industry seems pretty good there
- and good price information,
- this is why the airline industry definitely came to my mind because
- I can't imagine an industry where you have better price information that
- at least now after the internet came about
- that than in the airline industry.
- You want a flight from SF to NY you go to any of these travel sites
- Orbitz, Kayak, Expedia or where ever you go to
- and you get all the flights listed for you and listed by price.
- They can sort them by price and you can actually pick and you know you can and it's no people do they pick a flight that might be 500 or 600 Dollars,
- but they can compare based on few Pennys or on few Dollars. So there is extremely good...there is extremely good price information.
- Now we'll see the sellers have all of the IT systems to keep track of what airline prices are going as well.
- So the air travelling industry, like most industries, is not absolutely perfect competition but they gets pretty close to
- perfect competition. And you even see that in real world
- that's very hard for the airlines to make really a lot of profit and the really, and you know, whether you're talking about accounting profit or even economic profit.
- And you could see that when I've from this supply-demand curve right over here, so on this axis,
- the horizontal axis, this is the quantity, this is a measure of quantity of kind of airline service
- and we're measuring in billions of seat miles per week and
- I know that it sounds like the strange thing. But really what we are saying is, Ok, at the given week, tell me all of the seats
- that are in use and multiply those number of seats, so the number as seat miles, at the given week, the number of seats
- times the miles that be or the average miles per seat in a given week and that gives you how much air travel, this is a measure of air travel, let's say, in the US in that week.
- And on this axis, this is the price, this is price per, and we should actually say price per seat miles.
- Price per seat mile. And of course you have your supply curve right over here - this is your supply curve. At first
- they start providing those first few miles, it's relative to the airlines doing and willing to do that relatively inexpensively
- maybe they are finding it from the most obvious airports, that maybe their landing rights are cheaper or it's cheaper to lease things or whatever,
- but as they start doing running more and more routes between smaller and smaller cities, maybe smaller in
- less efficient planes. It's nice to come more and more expensive for them to supply those incremental miles.
- And we'll see on the demand side if air travel is very very expensive, very few people are going to want to travel,
- they're going to be very low travel and it happens, if it's very cheap many people are going to want to travel.
- Now let's say this is where the market is right now, and now we'll see we have an equilibrium price, we have an quilibrium price
- right over there, and we have an equlibrium quantity of seat miles. But let's say, let's say that the price level
- in order for the players that actually have an economic profit is over here. So it is right over here.
- So this is the price needed, this is the price needed for zero economic profit, or you could say for neutral economic profit or you could even say for normal profit.
- For economic profit to be equal to 0. So that point if that was, if that is the price,
- than the firms that are offering airline travels, they are a kind of neutral between shutting down and continuing to offer service. But note this,
- the way I draw it here, that substantially lower than the current equilibrium price. So what this is saying, is the current equilibrium
- price is good behind this or just higher at all, these firms in the market right now are generating an economic profit.
- Definitely positive economic profit. So what's happening, if there is a positive economic profit, that means there is an incentive in for other firms to enter into,
- to enter into this industry. So what's going to happen is, this is going to be the supply curve right at that moment,
- but as soon as other carrier realizes that they can or any of the carrier realizes they can offer a more,
- it doesn't even have to be new carriers entering, it could be existing carriers just offering maybe buying more planes or offering more routes.
- Than maybe a little bit later the supply curve shifts like this, the supply curve shifts like that and this would be our new equilibrium price.
- And we're still making an economic profit, because new equlibrium price is still, is still higher than the price needed for zero economic profit.
- So still more people will continue to enter and so than you might have a new supply curve that looks like this.
- And this is our new equlibrium price and what's happening, we're travelling, we're travelling down to the right along the demand curve.
- As more supply comes on, we're obviously increasing the quantity and the price is going down. But still, the equlibrium price is higher than this line right over here,
- so even more people will enter, even more people will enter till we get to the point right over there, and that point
- now the equlibrium price is the price in which all of the players are having zero economic profit, and there is no incentive
- for more people to enter into it, because than the equilibrium price will go down,or there, essentialy right now, the economic profit is zero.
- So everyone is neutral in this scenario. So I'll want to leave you there, so this is what happens
- with perfect competition, that there is no barriers to enter, there is more people to enter in in in, the price goes down,
- the quantity will go up. In this scenario, we're willing to do next interesting. But if we didn't have a perfect competition, especially what happens if something like,
- something like, I don't know, something like a monopoly?
Se específico e indica el tiempo en el video:
En el minuto 5:31, ¿cómo es que la Luna es lo suficientemente grande como para bloquear el Sol? ¿No es el Sol mucho más grande?
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Al nombrar una variable es correcto usar la mayoría de letras, pero algunas están reservadas, como 'e', que representa el valor 2.7183...
Agradece al autor
¡Esto es genial, por fin entiendo las funciones cuadráticas!
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