Economics

This is an example of a perfectly competitive market. In a perfectly competitive market, every participant is powerless. No single agent has control over the market. Every participant is a price taker. Therefore the decisions they make do not influence outcomes in the market. (Hill  Myat, 2007). Its quite easy to enter and exit the market in perfectly competitive conditions. Besides, participants do not incur any charges for participating in the market. Companies that participate in perfect market conditions aim at the meeting point of marginal cost and marginal revenue. In the case study the internet service providers market is accessed by anyone and both buyers and seller enter and leave at will. Its hard for any player to control prices whether they are big corporations like yahoo or small players like Godaddy. Decisions made by market players rarely affect the market since there are many lined up to join at will.

Marginal cost is the change in the cost incurred by a firm when an extra unit is produced. For ever additional unit that is produced extra cost is incurred. Marginal revenue on the other hand is the revenue the earned by a firm by selling an extra unit of a product (Carbaugh, 2006 p, 104). In a perfectly competitive market the rule marginal cost is equal to marginal revenue applies. For the small on line traders calculating the marginal cost and marginal revenue is a little difficult. Its difficult to calculate the cost of producing one extra domain name or hosting an extra website. In perfectly competitive market marginal revenue equals marginal costs in the long-run. Because there is no definite production channels in the online retail business its difficult to calculate marginal costs and marginal revenue.

Online business will enhance competition. Online traders carry out their businesses over the internet. The internet as it is is not limited to one territory. Therefore if it can enhance competition domestically, then it can globally. The competition is more likely to be on the quality front than the price front. This is because its hard for one player in the perfectly competitive market to influence price. On the other hand its easy for any player to enter the market and set its own standards.
According to the free financial dictionary, price takers are investors whose orders are so small that they cannot affect the price. It further says that the investor can be an individual or a small company. They are the companies whose prices are market dependent. (Alvarez, Guevara, Lopez  Garcia, 2008). In this case both the retailers are price takers. In a perfectly competitive market firms are interdependent and before set prices they consider price increase. Mostly its because they want to protect strategic interests or when they want to increase market share (Gill  Thanassoulis 2007). The retailers are operating in a perfectly competitive market. No player is bigger than the other. As a result influencing the price is difficult. Therefore they have to take what the market dictates. Its important to note that in some situations, big companies are the price makers while the small ones are the price takers.

The consumers in this case are price takers too. The purchases that a consumer makes rarely have effects on the market. Thats because the orders placed by the consumers are too small to have an impact on the market price. Again, since its a perfectly competitive market, the players cannot influence many changes in prices. The price in the market is almost constant and it revolves around some median. Because the consumers need the prices and no company offers less than what the market dictates, they take the price that is available. Technically that will make them price takers.