Whether Ebay and Stock Market Are Perfectly Competitive?

Basic conditions for perfect competition to exist:

• Many small firms, each of whom produces an insignificant percentage of total market output and thus exercises no control over the ruling market price.

• Many individual buyers, none of whom has any control over the market price – i.e. there is no monopoly power

• Perfect freedom of entry and exit from the industry. Firms face no sunk costs - entry and exit from the market is feasible in the long run. This assumption ensures all firms make normal profits in the long run

• Homogeneous products are supplied to the markets that are perfect substitutes. This leads to each firms being passive “price takers” and facing a perfectly elastic demand curve for their product

• Perfect knowledge – consumers have readily available information about prices and products from competing suppliers and can access this at zero cost – in other words, there are few transactions costs involved in searching for the required information about prices

• Transactions are Costless - Buyers and sellers incur no costs in making an exchange [Perfect mobility].

Is Ebay fulfilling all the above requirements?

• Many small firms -- Often the items on ebay are sold by one seller, which makes it not competitive.

• Many individual buyers – There are many buyers but they have control over the market price in the form of the auction. Thus, it is not competitive.

• Perfect freedom of entry and exit from the industry -- Ebay charges a little fee from the sellers but it can still be considered without entry barriers. There are virtually zero exit barriers. So this way Ebay is a perfectly competitive market

• Homogeneous Products -- Ebay feedback system shows that not all sellers provide the same quality of goods and service. So Ebay is not perfectly competitive.

• Perfect knowledge - Ebay does not have this as the final sale price is not known until the sale is completed. Again not perfectly competitive.

• Transactions are Costless - Ebay...