Internet – a market with perfect competition?

For a business that runs on the Internet, do we know if the latter is a market with perfect competition?

In order to try and answer this question, I will briefly introduce you to the characteristics of the market with perfect competition.

• Atomicity - on a certain market, there are a large number of small producers and consumers, but each one is so insignificant, that individual actions have no impact on the quantities produced on the market or on the sale prices of products, firms considering the price as given.

At present, according to statistics above, 1966514816 out of the global population od 6845609960 people use the Internet. The 2 billion Internet users are, at the same time, both consumers and producers (sellers) and this demonstrates that the Internet is a market on which a large number of consumers / producers operates with minimal influence, so with equal opportunities in this market, exemplifying the first feature of perfect competition in real context.

• Uniformity – the goods and services are perfect substitutes.

• Perfect and complete information – companies and consumers know exactly the prices set by all firms

Margarine and butter are an example of substitute goods. On the Internet we find substitute goods and besides that, we can see prices and offers in real time. Due to the specialized directories, with only three clicks you can see the product / service that interests you, the available suppliers from which we can a purchase it and the price charged by each, all of these in a process lasting somewhere from 5-10 minutes. This describes a total transparency that can not be found on any other market.

“(The Internet) It has had a tremendous effect. Look at what has happened in China. People can talk to each other, and the government, despite its best efforts, can’t control it.

The Internet also moves us closer to “perfect information” on markets. Individuals and companies alike can buy and sell across borders and jurisdictions wherever they find the best match of supply and demand. Undoubtedly it has reduced the possibilities of taxation. Why should I buy something here if I can buy it from a company in Japan or England or Brazil with a lower tax?

The Internet is the most effective instrument we have for globalization. ” Says Milton Friedman, supporting the arguments in favor of the assumptions that the Internet provides free, perfect and complete information.

• Equal access to technology - all firms have access to production technologies.

Entering the “internet” is very accessible. Anyone, anytime, can have access, both as buyer and as a producer. Costs are minimal and the technology can be assimilated by anyone.

• Mobility – the resources (including information) are mobile, manufacturing companies having the freedom to leave the markets experiencing loses and orientate towards the profitable ones.

An example of mobility on the Internet is as follows: A producer has an electronics store, and for some reason can not sell electronics anymore, but may sell clothes. Due to technology can change his virtual shop in just a few days with minimal cost, and acting the same with the advertisement he had until the change. Things are not quite the same on the real markets, where the costs and time needed to perform such a change are significantly higher.

• Free entrance – any company can enter or exit the market by their own free will

This is also true on the Internet as there are no costs for entry or exit, or if they are, are minimal. But besides these minimum costs , there is also a permissive legislation, which eases things even more.

The conclusion can not be other than this: Yes, the Internet tends towards the status of market with perfect competition. Hence the message “all businesses that do not become e-business will become ex-business” is meaningful.