What Is Perfect Competition?


Features of a Perfect Competition in Economics



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islomjon Normuminov

Features of a Perfect Competition in Economics


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Features of Perfect Competition in Economics


In Economics, the following are the most important features of a Perfect Competition.

  1. Large number of buyers and Sellers.

  2. Homogeneous Product.

  3. Free entry and exit conditions.

  4. Perfect knowledge on the part of buyers and sellers.

  5. Perfect mobility of factors of production.

  6. Absence of transport cost.

  7. Absence of Government or artificial restrictions.



Features of Perfect Competition in Economics

1. Large number of buyers and Sellers


In a perfectly competitive market, there will be a large number of buyers and sellers. Large number here denotes that the number of producers are so numerous that they cannot combine and influence the market price by their combined action and decisions. The individual action will not affect the market price because, the quantity offered by the individual producer will be so small when compared to the total quantity offered in the market, that the action of the individuals will be very insignificant and it cannot influence the market price.

Output of a single firm may not influence the demand and price to a great deal in market as it is only a small percentage of overall output. Similarly, on the part of the buyers, the number is so large that there are no possibilities for them to dictate conditions in the market and influence the price by altering the demand. The individual demand will be so small that it will be insignificant if there is any change. So the market price cannot be altered either by sellers or by buyers by their actions individually; nor are there possibilities for a few of them to combine.

In a perfectly competitive market, the individual firm is only a ‘Price taker’ and not ‘Price maker’. They cannot have a price policy of their own and will pay attention mostly to reduce the cost of production. They will adjust output to the market price.

2. Homogeneous Product


The second condition in the perfect market is that the commodity offered should be homogeneous and identical in all respects. The identity should be from the buyer’s angle. The buyers should feel that the products offered by different sellers are the same in quality, size, taste, etc., so that the product of different firms are perfect substitutes in the eyes of the buyers and the cross elasticity is infinite. If this is so, then a single seller cannot charge a higher price, as he will lose all his customers.

From these two important features, we can infer that in a perfectly competitive market, the average revenue curve of the firm will be horizontal to X axis, as the price cannot be altered by the individual firms. No one firm can increase the price. Since the product of the different firms is not considered superior or inferior by the buyers, they will not pay different price. Hence, in a perfect market, there cannot be price difference.


3. Free entry and exit conditions


The Third important condition in perfect competition is that there are no artificial restrictions either preventing the entry of new firms into the market or compelling the existing firms to continue. The firms have full liberty to choose either to continue or go out of the industry. Entry and exit of firms purely depend on economic considerations only.

If the above three conditions alone are fulfilled, then it is called 


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