IN this week’s publication we read interesting stories about the control of the medicines and the choices commuters have to make between using taxis or buses. We realise the impact government has on business with its regulation policies, a thin line between perfect and imperfect competition.
July 1, 2022
3 min read
The imperfection of perfect Lesotho industries
- Competition should occur on each side of the market
- Is government’s intervention a bad thing?
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Competition should occur on each side of the market, where in the goods and services markets the buyers compete to obtain the good or service and the sellers compete to sell the good or service to the buyers.
Analysing both the medicines and transport industries, we observe all the necessary requirements are present except for government’s intervention, which shifts the businesses to become so imperfect.
There must have been no government intervention to influence buyers and sellers for a market to be perfect, where perfect competition consists of all buyers and sellers of the good or service provided. In our case, the demanders are buyers and the sellers are suppliers like taxi operators and medical practitioners, whether traditional or modern.
Is government’s intervention a bad thing?
Well it makes sense if regulation and control of the medicines will ensure safety and quality to preserve lives. But it is worrying if government’s interference in the transport market is influencing the behavior of both commuters and transport operators.
In this case both commuters and taxi or bus operators are price takers after government has set prices instead of the market setting its own prices. Under normal circumstances, the prices should have been given by what quantities of taxis and buses to supply or demanded by commuters at that price.
Perfect competition can only occur when none of the individual market players, that is buyers and sellers, can influence the market. Yet, we notice how powerful government can be in setting market prices away from the market forces of demand and supply.
For both the medicines and transport markets, there is a large number of buyers and sellers - the number big enough so that no individual buyer or seller can affect the market price. Each (taxi or bus) and (pharmacy or traditional medicine practitioner), can only supply a fraction of the total market supply.
Despite government’s control, there should have been no collusion between sellers or service providers as each would act independently.
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Obviously, the goods and services (medicines and transport) are identical enough – homogenous - that there should therefore be no reason for buyers or commuters to prefer the product of one seller to the product of another seller. In fact, traditional medicine is usually herbs and concoctions that are made from our natural flora and fauna at our disposal.
These are also industries where buyers and sellers are completely free to enter or leave the market. Except for government’s regulation, there are no barriers to entry whether financial, technological, physical or other restrictions which inhibit the free movement of buyers or sellers.
Since all the buyers and sellers in these markets have a perfect knowledge of market conditions, if one route or association or traditional medicine practitioner or pharmacy would raise prices above the market prices, all the buyers would know and buy from the seller who charged lower prices.
Finally, all factors of production are mobile in the medicines and transport industries that they can move freely from one market to another.