Theoretical Reasoning Identifies Multi-Product Segment in a Perfectly Competitive Market

Competition reduces prices. But, what is not commonly known is that competition also promotes more products in the same category, leading to a diversity of makes and models that could only benefit the consumer. At the theoretical level, a perfectly competitive market creates the space for different manufacturers and models to survive either in the general market segment or in a niche market space. What promotes this state of affairs in the consumer market is the quintessential characteristic of perfect competition: i.e., different models and makes of the same class of product such as refrigerator could compete directly across all specifications (including dimensions), style of design and price without regulatory hidden externalities interfering with product discovery by consumers. From behavioural economics, the consumer market is heterogenous with different consumer groups preferring different makes, models and country of origin of products. This naturally translates into demand formation for different products of the same category in the market. Hence, a perfectly competitive market supports the co-existence of multiple products of the same category, each able to compete based on their unique selling point. Different from the above is the role introduced by regulatory hidden externalities. Such externalities could be introduced inadvertently such as in the provision of cabinets in the kitchen of new furnished public housing. Such cabinets would naturally place constrains on the height, width, and length of a refrigerator, which hence rules some models and makes out of the mind of consumers from this category of buyers. In such a market, perfect competition could not be realised, and the consumer is limited to a narrower product range and choice, and the economy is beset, as a whole, with an economic inefficiency: perhaps the refrigerators available are more energy inefficient or which are too small to satisfy the needs of the household. Such economic inefficiency may translate into something unexpected such as increased frequency of eating out of home in what is emergent behaviour from a fundamental misallocation of what is needed and what is possible in the consumer refrigerator market for a particular consumer segment. Economic inefficiency such as this may hold important implications for the economy at large