Discuss in detail the characteristics of perfect and imperfect markets under the Information availability
Perfect market and imperfect market refer to the efficiency level in the market. It describes how well the market is productive in its pricing, information availability, and delivery. Under the Information availability, the characteristics of perfect and imperfect markets are discussed below.
Characteristics of Perfect Markets under Information Availability:
1. Information is equally available: In a perfect market, information is readily available, and all market participants have access to the same information. It leads to market transparency and provides equal opportunities for all participants to make informed decisions.
2. No market power: Perfect markets don't have a monopoly or oligopoly. No individual or group is powerful enough to influence the overall market price. Hence, the demand and supply determine the fair market price.
3. Homogeneous products: Products traded in a perfect market are similar in quality, type, and features, so they are interchangeable. The products have a standard color, shape, brand name, quality, and price point. The customer can compare the prices easily and choose the best value product.
4. Perfect competition: The perfect market exists in perfect competition; hence, many buyers and sellers exist in the market. It supports fair competition between traders, creating an incentive to produce at the lowest price. The absence of many buyers and sellers can lead to a monopoly, and hence, traders can take advantage of the situation by charging higher prices.
5. Free entry and exit: In a perfect market, there are no limits to entry or exit from the market. This makes the perfect market more dynamic and flexible.
Characteristics of Imperfect Markets under Information Availability:
1. Information asymmetry: Imperfect markets have information asymmetry; not all traders have the same information. Assets or goods traded in imperfect markets may not have the same quality, design, or other attributes, leading to price disparities.
2. Market power: Imperfect markets have a power structure, where a few dominant players have control over the market price. Market power creates an opportunity for traders to manipulate prices, leading to losses for retail traders.
3. Heterogeneous products: Imperfect markets have non-standard goods, which may vary in quality, brand name, and features. This inconsistency leads to confusion and price discrimination.
4. Imperfect competition: In imperfect markets, traders may not be able to offer the same product at the same price. It is due to the dominance of some market players, unequal market access for some traders, and non-standardized products.
5. Barriers to entry and exit: In imperfect markets, there are obstacles to entry or exit from the market. The barriers can be regulatory, economic, or social, which creates uneven opportunities for traders.
Conclusion:
Perfect and imperfect markets exist in the real world, based on the efficiency in pricing, information availability, and delivery. A perfect market is ideal, but it rarely occurs in the real world. Hence, information availability is an essential factor that influences the efficiency of the market. While perfect markets have equal information among all participants, imperfect markets have information asymmetry. Perfect markets need homogeneous products, perfect competition, and free entry and exit, while imperfect markets have non-standard goods, imperfect competition, and barriers to entry and exit.