In textbook microeconomics, perfect competition is often described as requiring a homogeneous product, perfect information on the part of consumers and lots of sellers. Does bread fit this model? Does it matter?
Responses
Strauch
Models are used to simplify complicated concepts. If real life is simple enough to create a model without any simplification or generalization, then a model is unnecessary. With that said, no, there is not perfect competition in the bread market. There isn’t even perfect competition in the pre-sliced fortified, white wheat bread market. This does matter. The benefits of having a variety of options far outweigh the benefits of perfect competition. Having slightly cheaper white bread won’t benefit the person who needs high fiber, the person with a gluten sensitivity, or the person who does not like white bread. Furthermore, who can educate every customer on every aspect of every bread product? And how many of the customers would care to know that much about bread?
Responses
Models are used to simplify complicated concepts. If real life is simple enough to create a model without any simplification or generalization, then a model is unnecessary. With that said, no, there is not perfect competition in the bread market. There isn’t even perfect competition in the pre-sliced fortified, white wheat bread market. This does matter. The benefits of having a variety of options far outweigh the benefits of perfect competition. Having slightly cheaper white bread won’t benefit the person who needs high fiber, the person with a gluten sensitivity, or the person who does not like white bread. Furthermore, who can educate every customer on every aspect of every bread product? And how many of the customers would care to know that much about bread?