Technology Changes

This week we discussed the idea of the perfectly competitive markets and the effects in the change in supply, demand, and technological changes. The perfectly competitive really does not exist but the requirements for a market to be perfectly competitive are as follows:

-Many sellers, many buyers, identical good
-No barriers to entry or exit
-Buyers and sellers enjoy perfect information
-Established firms have no built-in advantage

The requirements of a market being perfectly competitive make it more of a mythical idea but the effects of changes can be applied to markets that are nearly perfectly competitive. I am most interested in the effects of a technological change on this perfectly, or near perfect, competitive market.

The theory regarding the technological changes is that the new technology will improve effecience thereby lowering costs and lowering prices. But in order to implement this new technology a firm must have the funding as well view it as a beneficial change for the future. While most instances where conforming to the technology changes would be necessary there are examples of firms reacting to the changes instead of conforming with them.

One example of this would be in the banking industry with the bank Charles Schwab. While most banks have utilized the technology provided with the ATM's Charles Schwab chose instead to react to the changes by eliminating the need for their own ATM's. All banks charge a usage fee for using their machines so if a Bank of America customer withdraws money from an ATM owned by Wachovia then they are charged a fee. Charles Schwab chose to pay their customers back that fee that is charged instead of attempting to operate their own ATM's. Instead of competing with the other banks by utilizing the technological advances they utilized the advances of the other banks which increased their customers available ATM's to all of the ATM's in existence.