Characteristics of Perfect Competition

Characteristics of Perfect Competition

A perfectly competitive market occurs when there are several sellers and producers selling identical products and no single producer can control prices. It is a type of economic structure where the market prices are at equilibrium and are determined by market forces of demand and supply. A perfectly competitive market is one in which all players have complete information and there are no transaction costs. The following are some of the few characteristics of a perfectly competitive market.

1) Many Buyers and Sellers

There are many buyers and sellers in the market in a perfect competition. So individual decisions cannot affect prices. Therefore, prices will always be at its lowest. There is a large choice of suppliers and consumer sovereignty.

2) Free Entry and Exit

In a perfectly competitive market, there is freedom of entry and exit in the market. This means that new firms can enter into the market and old ones can leave the market freely. There are no barriers to entry and exit.

3) Homogenous or Identical Products

Products in a perfectly competitive market are homogenous, i.e. there is no product differentiation. This means that buyers will always consider the quality and efficiency of products in their consumption choices.

4) Perfect Information

There is perfect knowledge and/or information. In perfect competition no player can withhold information from others and no one has information which others do not. Therefore, consumers can easily walk around and see what sellers offer.

5) All Firms are Price Takers

In perfect competition, no single company can set or influence prices. Customers have a high bargaining power, driving prices down so that each firm takes the prices that are determined by market forces.

6) Perfect Mobility

Capital and labor are perfectly mobile in a perfectly competitive market.

7) No Transport Costs

Transport costs are significantly reduced and as a result consumers are able to buy products at lower prices. Transportation is also efficient and convenient for consumers.

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