Competitive Behaviour
In everyday language, the term competitive behaviour refers to the degree
to which individual firms actively vie with one another for business. For
example, MasterCard and Visa clearly engage in competitive behaviour. It
is also true, however, that both companies have some real power over
their market. Each has the power to decide the fees that people will pay
for the use of their credit cards, within limits set by buyers’ preferences,
the fees of competing cards, and some government regulations. Either
firm could raise its fees and still continue to attract some customers. Even
though they actively compete with each other, they do so in a market that
does not have a perfectly competitive structure.
In contrast, the Saskatchewan and Manitoba wheat farmers do not engage
in competitive behaviour because the only way they can affect their
profits is by changing their own outputs of wheat or their own production
costs.
The distinction that we have just made between behaviour and structure
explains why firms in perfectly competitive markets (e.g., the
Saskatchewan and Manitoba wheat producers) do not compete actively
with each other, whereas firms that do compete actively with each other
(e.g., MasterCard and Visa) do not operate in perfectly competitive
markets.