What Is Perfect Competition?

Pure competition. In a pure competition the monopolistic element is absent. With large number of producers producing the same commodity and the liberty to enter and exit the industry, monopolistic combinations are not possible.

In addition to the above stated three features of pure competition, some more conditions are attached to the perfect competition. They are:

4. Perfect knowledge on the part of buyers and sellers

The fourth condition is the existence of perfect knowledge on the part of buyers and sellers about market conditions. The buyers know in full about the commodity sold and the price prevailing in the market. The sellers know the potential sales at various price levels in the market.

Since buyers know everything about the product and the price prevailing, there is no need of incurring any expenditure on advertisement and publicity by the firms under perfect competition. This is significant because, when market becomes perfect, there need not be any advertisement; while the market is imperfect, advertisement plays a dominant role. Ignorance of any buyers is ruled out in a perfect market.

5. Perfect mobility of factors of production

The existence of perfect competition depends on perfect mobility of factors of production. The factor should be free to move from one use to another easily depending on the remuneration they get.

6. Absence of transport cost

In a perfectly competitive market, it is assumed that there are no transport costs. If transport costs are incurred, prices should be different in different sectors of the market.

7. Absence of Government or artificial restrictions

Lastly it is assumed that there are no restrictions from any quarters hindering the smooth functioning of perfect competition. There are no government control or restriction on supply, pricing, etc, and the price should be free to change in response to changes in demand supply conditions. If all these conditions are fulfilled, then the market can be termed perfect and this perfection cannot be had in practical side.