Perfect Competition Model and Why it is Said to Promote Efficiency - Essay Sample

Published: 2021-08-16
468 words
2 pages
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Carnegie Mellon University
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A perfect competition model is a model whereby all firms have the following characteristics. Firstly, all firms sell identical goods (Comanor et al., 2014). Secondly, all firms are price takers in such that they dont control the market price of their products. Thirdly, both buyers and sellers have complete information about the commodity and its price. Lastly, there is freedom of entry and exit from the market. It promotes efficiency because goods and services are sold at equilibrium point. At equilibrium, all resources are utilized and production in the long run at this point is at the minimum cost possible (Pepall, Antonioni & Rashid, 2016). Goods and services are said to have been efficiently produced when produced at minimum cost. Hence, perfect completion is said to promote efficiency.

Limitations of Perfect Competition Health Care Markets and the Implications

Unlike the perfect competition modern where there are a large number of sellers who cannot influence the price, a percentage of health care is delivered by hospitals and these hospitals sometimes exercise monopoly power and act as the price maker instead of a price taker. For example, a hospital that is located in a rural community without any other hospital around without competition is likely to set high prices (Mwachofi & Al-Assaf, 2011). Also in health care, there is asymmetry of information between the doctors and patients. The information is not shared equally between buyers and sellers (Allen, 2013). Patients dont have medical knowledge as the doctors do so they depend on doctors for the best outcome. This is not what happens in a perfect competition market because the buyers have perfect knowledge of the market. Also, there is no product homogeneity in health care. The products of one physician are different from those of another. There is price discrimination in health care. Patients sometimes pay different prices for the same service depending on income. The nature of healthcare market structures doesnt push producers to be efficient. Healthcare is an essential commodity stat everyone should get regardless of if they can afford or not and therefore prices cannot be determined by market forces (Zaprutko et al., 2017).


Allen, P. (2013). An economic analysis of the limits of market based reforms in the English NHS. BMC Health Services Research, 13(S1).

Comanor, G., Jacquemin, K., Jenny, A., Kantzenbach, E., Ordover, E., & Waverman, L. (2014). Competition policy in Europe and North America. London: Routledge, Taylor and Francis.

Mwachofi, A., & Al-Assaf, A. (2011). Health Care Market Deviations from the Ideal Market. Health Policy And Planning, 11(3), 328-337.

Pepall, L., Antonioni, P., & Rashid, M. (2016). Microeconomics for dummies (3rd ed.). John Wiley & Sons.

Zaprutko, T., Kopciuch, D., Kus, K., Merks, P., Nowicka, M., Augustyniak, I., & Nowakowska, E. (2017). Affordability of medicines in the European Union. PLOS ONE, 12(2), e0172753.

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