Significance of imperfect competition models for explaining the Essay

Significance of imperfect competition models for explaining the pattern of international trade - Essay Example The researcher states that international trade is growing day by day as a result of globalization and liberalization policies implemented by different countries at different parts of the world. The major obstacles for the smooth flow of goods and commodities between different countries have been diminished a lot as a result of globalization. At the same time one of the major problems associated with international trade is the fact that the problems happened in one part of the world can have detrimental effect in other parts of the world as well. Competition is growing immensely in the market as a result of the rapid growth of international trade. Ideally, all organizations would like to have some kind of monopoly or some kind of control over the price mechanisms in the market. However, growing competition prevent organizations from controlling the market effectively. Competition in the market can be labelled as perfect competition and imperfect competition. Perfectly competitive mark ets refer to the markets in which the firms do not possess any market power whereas in imperfectly competitive markets, some organizations definitely have control in the market as far as price mechanisms are concerned. â€Å"Competitive markets provide strong incentives for good performance - encouraging firms to improve productivity, to reduce prices and to innovate; whilst rewarding consumers with lower prices, higher quality, and wider choice† whereas imperfect competition denies all these things. ... tition†(Pomphret, 1992, p.1).This paper analyses the significance of imperfect competition in the market as far as international trade is concerned. International trade and imperfect competition â€Å"Imperfect Competition exists when more than one seller competes for sales with other sellers of similar products, each of which has some control over price† (Models of Imperfect Competition, n. d, p.1). In other words, in an imperfectly competitive market, firms may have some power in the market as far the fixing of the prices of its commodities is concerned. Monopoly or oligopoly exists in such markets. For example, Microsoft enjoys monopoly in operating system market. They are capable of fixing the prices of their operating systems like Windows 7 in global market because of lack of competition. Even though Linux and Apple’s Macintosh operating system are raising some kind of competition, still Microsoft is able to maintain their monopoly in the imperfectly competit ive operating system market. Same way, OPEC countries are enjoying oligopoly in the oil market. It should be noted that monopolies or imperfect competition helped Microsoft and OPEC to dictate the market with the help of least efficient products. Consumers forced to pay more than the actual prices of a product in an imperfectly competitive market. In short, â€Å"Firms in a competitive market have very little control over what price they receive for their output†(Perfect Competition, n.d.) whereas â€Å"Monopolies have the most market power, which yields the least efficient outcome† (Monopoly and Perfect Competition Compared, n.d., p.4) According to Krugman et al (2011) â€Å"In a competitive economy, supply decisions are determined by attempts of individuals to maximize their earnings† (Krugman et al, 2011,