Grocery stores and gasoline stations in a large city would appear to be examples of competitive markets: There are numerous relatively small sellers, each seller is a price-taker, and the products are quite similar.
a. How could we argue that these markets are not competitive?
markup is very small, seldom do these sellers have much flexibility on price, espcially in the face of the large sellers who have a wholesale price advantage.
To argue that grocery stores and gasoline stations in a large city are not competitive markets, we can consider a few factors:
1. Market control: If a small number of sellers dominate the market and dictate prices, it suggests a lack of competition. For instance, if a few large supermarket chains or oil companies control the majority of grocery stores or gas stations, respectively, they can exert significant influence over pricing and limit consumer choice.
2. Barriers to entry: If there are high barriers preventing new firms from entering the market, it reduces competition. For example, obtaining licenses, meeting regulatory requirements, or acquiring prime locations can be challenging for potential new entrants. If these barriers are substantial, existing sellers have a reduced incentive to compete aggressively.
3. Differentiated products: Though grocery stores and gas stations may seem similar, there can be significant differences in terms of quality, convenience, and branding. If these differences allow sellers to differentiate their offerings and charge higher prices, it reduces the extent of competition.
4. Collusion or price-fixing: If sellers in these markets engage in collusive behavior, such as forming cartels or agreeing on price-fixing, it undermines competition. Such illegal practices can artificially inflate prices and act against the principles of a competitive market.
To gather more evidence about the competitiveness of these markets, one could conduct a detailed analysis, including assessments of market concentration, barriers to entry, pricing behavior, and any evidence of collusive practices. Additionally, examining consumer choices, switching behavior, and market dynamics over time can provide insights into the level of competition present in these markets.