Perfect competition is a market structure in which there is a large number of buyers and sellers. All sellers produce a homogeneous product. Change the output produced by the seller or a perfect substitute, there is the complete absence of rivalry. No individual sellers can influence the market. Only the industry which is a group of sellers determines the price of the output. all sellers are price takers, not price makers.

Perfect competition


According to A Koutsoyiannis - perfect competition is a market structure characterized by a complete absence of rivalry among the individual firms.

Characteristics of perfect competition market

The characteristics of a perfect competition market are explained below:

1. Large number of buyers and sellers

There is a large number of buyers and sellers in the industry. Due to a large number of buyers and sellers, no individual seller can influence the price of the product.

2. Homogenous product

All sellers are homogenous products under the industry. All product all products seem identical not only in the shape but also in color, size, trademark, taste, etc.

3. Entry and exit

There is the freedom to enter and exit firms or sellers in the industry. The firms are freely allowed to start the business or close the business without restriction.

4. Perfect knowledge

There is perfect knowledge among buyers and sellers about the existing conditions of the market in this market information is free and costs less.

5. Price taker

No individual firm or seller can influence the price of the product. The demand and supply factor in the industry is responsible to determine the price of the product. All firms should follow the price determined by the industry. So all firms are price takers.

6. Perfect mobility of factors of production

Factors of production refer to land, labor capital, and enterprise. All factors of production are free to move from One Firm to another throughout the economy. There is no restriction in the mobility of factors of production.

7. No government regulation

There is no government intervention (such as tariffs, subsidies rationing of output) in the market. The demand and supply factors determine the price of the product. The government adopts the Laisezzfaire- policy.

8. Absence of transport cost

There are no transport costs. Even is transportation cost exists, it is negligible. It ensures Uniformity in price throughout the market. Transport cost is incurred, the firms nearer to the market will charge low prices than the firms far away.

9. Independence of decision-making

All buyers and sellers are fully independent. The buyers are free to purchase the required commodity from any sellers and sellers are free to sell their commodity to any buyer.

10. Profit Maximization

The goal of all firms is profit maximization. All the firms accept the price determined and adjust output to maximize profits.

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