Assumption of No Obstacles in the Market

Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Assumption of No Obstacles in the Market The assumption that there are no barriers in the market in economic theory assumes that markets operate without any barriers, such as government regulations or monopolies, so that all market participants have equal opportunities to enter the market, transact, and compete. In a market free of barriers, price and quantity will reach a market equilibrium point where the quantity of goods supplied equals the quantity of goods demanded. Thus, a barrierfree market is considered efficient because resources are allocated optimally, and the profits generated by producers and consumers are also optimal. However, in reality, barriers may arise in the market, such as high entry costs, monopolies, oligopolies, or excessive government regulation, which can disrupt the market and result in an imbalance between supply and demand. Therefore, the study of market barriers and how to reduce these barriers is important in economics. The assumption that there are no barriers to entry is the assumption that there are no factors or entities that prevent new companies from entering the market. In a perfectly competitive market, this assumption is very important because if there is a barrier, it can change the nature of the market and affect the behavior of firms. Some of the barriers that may occur in the market include: 1. High fixed costs: If there are high fixed costs in the production or distribution of goods or services, they can become a barrier for new companies wishing to enter the market. For example, starting an aviation business requires a large initial investment to buy planes, hangars and other equipment. 2. Patents and trademarks: Owners of patents and trademarks can restrict competitors' entry into the market. The new company must find a way to manufacture a similar or equivalent product without infringing on the patents and trademarks owned by the existing company. 3. Government regulations: Governments can limit the entry of new companies into the market through various types of regulations, such as business license limits, environmental requirements, occupational health and safety requirements, and other requirements. If there are barriers in the market, the market cannot be considered as a perfectly competitive market. Therefore, the assumption of the absence of barriers is very important to maintain the competitive nature of the market and enable companies to enter the market without significant difficulties. In the market context, the assumption of the absence of barriers refers to a situation where firms and consumers can freely enter and leave the market. Under these conditions, there are no obstacles in the form of regulations or government policies that prevent new companies from entering the market or existing companies from leaving the market. In addition, there are no barriers in the form of monopolies or oligopolies where a few large companies dominate the market. In the absence of barriers, the market is considered efficient because the forces of demand and supply will determine market prices. Companies will compete to produce and sell products at the most competitive prices to gain a larger market share. This will promote efficiency in production and distribution, as well as benefit consumers by offering higher quality products at lower prices. However, in the real world, market barriers often occur, such as regulatory, monopoly, and oligopoly barriers, which can disrupt the competitive process and reduce market efficiency. Therefore, governments often establish policies to promote fair competition in the market and reduce barriers that can harm consumers. In the context of financial markets, the assumption that there are no barriers in the market refers to a condition where investors can easily buy and sell financial assets without being constrained by excessive transaction costs, taxes or government regulations. In this condition, all investors have equal access to information and prices, so that no party can influence or manipulate prices. However, in reality, financial markets are not always free from constraints and biases. There are several types of market barriers, including transaction costs such as commissions and spreads, taxes on financial transactions, excessive government regulation, and the presence of asymmetric information. Information asymmetry occurs when one party has access to more or better information than the other party, thus influencing prices and investment decisions. In some cases, market barriers can cause an imbalance in the market, which can lead to sharp price fluctuations or an investor's inability to buy or sell an asset at a fair price. Therefore, it is important to consider the presence of market barriers in financial analysis and to develop an investment strategy that takes into account the risk of market constraints that may occur.