Perfect Competition

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PERFECT
COMPETITION

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Perfect Competition
“Perfect competition is a
theoretical concept like the
Euclidean line, which has no width
and no depth. Just as we've never
seen that line there has never been
truly free enterprise”.
- Milton Friedman

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Perfect
Competition
Perfect competition, also
termed pure competition is an ideal
market scenario, where all
competitors sell identical products,
each having a small share in the
market. The market price is not
determined by the sellers, but purely
rides on the merit of the product. Safe
to say, then, that perfect competition
exists mostly in theory, with the
exception of a few, isolated cases.

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Perfect Competition
A market structure in which the following five
criteria are met:
 All firms sell an identical product;
 All firms are price takers - they cannot control
the market price of their product;
 All firms have a relatively small market share;
 Buyers have complete information about the product
being sold and the prices charged by each firm; and
 The industry is characterized by freedom of entry and
exit.
Perfect competition is sometimes referred to as "pure
competition".

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Perfect Competition
Perfect competition is the opposite of a monopoly, in
which only a single firm supplies a particular good or
service, and that firm can charge whatever price it
wants because consumers have no alternatives and
it is difficult for would-be competitors to enter the
marketplace. Under perfect competition, there are
many buyers and sellers, and prices reflect supply
and demand. Also, consumers have many
substitutes if the good or service they wish to buy
becomes too expensive or its quality begins to fall
short. New firms can easily enter the market,
generating additional competition. Companies earn
just enough profit to stay in business and no more,
because if they were to earn excess profits, other
companies would enter the market and drive profits
back down to the bare minimum.

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Perfect Competition
Example:
An example of perfect competition would be the fish
market and the vegetable or fruit vendors who sell
at the same place.
 There are large number of buyers and sellers.
 There are no entry or exit barriers.
 There is perfect mobility of the factors, i.e. buyers
can easily switch from one seller to the other.
 The products are homogeneous.

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