Video Transcript: Perfect Competition

Hello, welcome. In this video, we're going to discuss perfect competition and  how it's affected by you know different threats in the market, right? Particularly  many players, right? In the market, there's a in perfect competition that they're  the supply of in this example we'll use air travel so in the airline industry there  are not very many competitive advantages between the two companies right or  between the different players in the market right so they have many different  players in the airline industry with identical products, right? There are really no  barriers to entry. Anybody can start a airline service, right? There's not like it's a  finite amount of land, right? That and you can only build on so much land, right?  We can have pretty much unlimited airspace travel, right? Because there's a lot  of area to allow for air travel, right? So there's really no barriers into that  industry, right? So no real advantage for existing and good price information. All  of these things comprise of perfect competition, right? So, price price  information is readily available. Supply and demand is easily measured, right,  and and reported. There's no advantage for existing, right? There is no real  advantage for staying in business, right? Other than the profit side, and then  again, no barriers to entry in many players with identical products, right? So let's take a look at the supply and demand curve here for the air travel industry, and  we're going to see how perfect competition affects the pricing of right of different  air travel providers. Okay, so let's first put on our vertical axis the price per mile.  Okay, so 20 cents, 15, 10, 5. Okay, and then we'll we'll say the billions of seats  of seat miles per week. Right, billions of seat miles per week. Okay, so let's draw our supply curve and our demand curves. So, supply curve here. Let's take it on  out. Demand curve. Okay, that's right up from here. All right. So. make that a  little bit lower and be better for the example. Okay. So now we can see that  equilibrium price for price per mile is going to sit right around here at 12 cents  per mile at about 5 billion seats seat miles per week. So now we want to look at  what happens when perfect competition takes over. Right now, as perfect  competition takes over and many players enter the market. There's no barriers  to entry. Good price information, right? You will start to see the supply curve  shift, and it'll shift downward because you have no competitive advantage in a  perfect competitive market and a perfect competitive environment. And as more  and more entrants or competitors enter that market, your market share in a  perfect, perfectly competitive market will have no choice but to decrease  because there is going to be no differentiation or separation between these  potential between these airlines. Right as as the market adjusts for the perfect  competition, right? So we'll see our supply curve shift down incrementally as  more and more entrants come into the market, right? So now we can see that if  we break below this point, right? Because we are here at max capacity, right?  We have zero economic profit below 10 cents per mile, right? 10 cents per mile.  We are at zero economic profit here, right? So you can see how profit, how  prices move down according to the supply curve, and as like I said earlier, as 

the market becomes more competitive, more players enter the market, right?  Your market share will have no choice but to decrease in a perfectly competitive  market. Therefore, your supply curve will shift in a perfectly competitive market  with many players, and all of these characteristics that define perfect  competition, right? As more entrants enter the market, your supply and your  quantity supplied will go down because your market share will have no choice  but to go down, and we can only go to 10 cents per mile because we are maxed out at our ability to this is this is how many seats that we can fill at this level,  right, and still have zero economic profit. So we don't want to see our prices fall  below 10 cents per mile because then there will be an opportunity cost that is  greater, right, than what we are investing in here, and then it would be smarter  for us to disintegrate our airline and move our cash somewhere else. Right, so  we don't want to see the economic profit fall below zero. So if if prices drop  below this 10 cents price per mile, we could be operating. Well, we will be  operating in an economic deficit, but we could be in danger of operating in an  accounting deficit as well.