Perfect Competition

A perfectly competitive market is distinguished by several key characteristics, ensuring that no single participant has the power to unilaterally influence the market price for goods and services.

First, there are a large number of buyers and sellers in the market, none of which are large enough to dictate market conditions. This ensures a high level of competition exists where the price is determined by the overall supply and demand within the market.

Second, the products that are offered by the competing firms are all homogeneous, or identical, leading consumers to have no preference for a product solely based on its supplier.

Another vital feature is the free entry and exit of firms in the market. This means new businesses can start selling, or existing ones can leave without significant obstacles, keeping the market dynamic and competitive.

Additionally, all participants have perfect information about the product and market prices, making the market more efficient as buyers and sellers can make well-informed decisions.

No real world market can be described as a perfectly competitive market. However, an example of a market approaching perfect competition is the agricultural sector for staple crops, like wheat. Farmers in this market produce nearly identical products, there are many buyers and sellers, information on prices is widely available, and new farmers can enter or exit the market with relative ease.