So today in my MicroEcon class my professor asked for examples of perfect competition and I proposed Car Dealer ships because the fufill all five requirements:

-Many Buyers/Sellers: Obviously true tons of dealerships, and always SOMEONE wanting to buy a car
-Homogeneous Products: New-car dealers always sell the exact same manufacturer, while in a macro prospective, it's un true about perfect competition, but per certain manufacturer, it's true as they all sell the same models of honda, toyota, etc (do not include used car)
-No Barrier market: Obviously if you have money, anyone can become a car dealer, that's not an issue.
-Buyers and Sellers Set Price: true because the market does set pricing for new cars, regardless of the price the manufacture sells (MSRP) it can be lower if there is no demand. Exact opposite in the sellers case if there's a lot of demand, they'll sell above MSRP there for giving them the advantage in certain cases
-Small Market Share: There's so many so of course they only have a small market share


But my Professor was saying that they may offer different SERVICES for their new cars, i.e. warranty packages, service packages, etc. While this is true, that's not a requirement of perfect competition, and I was trying to explain that but she just said "are there any other takers for examples??" I was pretty pissed she wouldn't directly answer my question/propsition making me feel liek I was right and she was just backed into a corner . She kept saying cars are an ologopoly, which is true about manufacturers, but not dealers, but she wouldn't talk about dealers, only manufacturers.

So was I right in proposing that New Car Dealers are in fact in a Perfect Competition Market?

Any explanations would help!

Aaron

 

I hate to say it but the auto market does not fit the definition of perfect competition.

If I were a teacher I would shoot you down on this premise alone: Cars are not a homogenous product. Also, dealers do not dictate the market per se....it is the manufacturers. They are the producers....and the barriers to entry on being a car manufacturer are super high.

The closest thing to perfect competition that I can think of in the real world is probably commodities markets (ie...soy beans, wheat, OJ, etc.)

 

But my arguement was that in general terms, a car is a car, right? Without going in to detail about different types of cars. Couldn't you look at it like that?

 

^^ A car is a car, but what makes cars different and more appeasing to the customer is variation between Manufacturers. Each production company tries to make their car different from competitors. And no, you can't just look at it from the perspective that they're all just cars, because if you did that in Economics with different things then it wouldn't really be Economics. You have to be specific and know exactly what you're comparing and analyzing.

 

Okay, thanks. I guess it sounded good in principle and not applied directly.

Thanks guys!

Aaron

Edit:

Wait, but I'm not talking about CARS themselves. I'm talking about the car dealers. Car dealers PER manufacturer are homogeneous, because they sell the exact same cars. This is where my confusion with the instructor was, that she was saying cars aren't homogeneous. Which yes, I understand that. but if we're just looking at DEALERS who sell the cars, and not the cars themselves, then wouldn't that be perfect competition? The only thing missing for it to be perfect competition is the homogeneous of the equation, which I believe can obviously be proved by the fact that a new honda dealership will sell the exact same models of honda as the next, therefore the DEALER is homogeneous in it's sales aspect, correct?

 

Fundamentally, dealerships are more of price setters thanprice takers.

All firms in PC are price takers and can have no influence upon the equilibrium price.

 

But if an example of a dealership which would be a price taker is GMC. Right now, they are for SURE price takers because of the way the market is. And I believe a lot of dealerships are actually price takers.. That's what negotiation is all about, correct?

 

A car, is not a car. In terms of function as a car, we can all agree upon the basic purpose is to get you from point A to point B. However, not all cars alike. Car X, for example, has more headroom than car Y. Therefore, you can not compare directly between the two based upon that reason alone. A criteria for perfect competition is both competitors must be an identical product.

 

That's why I had my edit saying I'm not talking about cars, i'm talking about the dealerships that sell the cars. Again, my point is that the cars new car dealerships sell are the SAME cars per manufacturere. So Dublin Honda and Hayward Honda would be in perfect competition, as they fufill all the requirements (including homogeneous product based on they sell the exact same model). Most of you, as well as my teacher are focusing too much on the car when I'm strictly talking about the dealerships.

My question is:

Wouldn't new car dealerships of the same make be in perfect competition?

 

Yes. How you're wording it to us seems to be the problem though. I think you need to modify your answer to be, "Are same brand car dealerships examples of perfect competition?"