Perfect Competition Is It Possible?

Only available on StudyMode
  • Download(s) : 86
  • Published : December 2, 2012
Open Document
Text Preview
“Perfect Competition.
Is it possible?”

There are various market structures in our economy and knowing about them in details can help us in marketing our product properly so as to increase total revenues and thereby, the net profits. The perfect competition market, which is characterized by many sellers and buyers exists in many developed as well as developing countries like India. Monopoly market and oligopoly market are some other types of markets which are also important

Perfect competition is a market structure in which many firms sell identical products, and no barriers to entry into the market exist for new potential sellers.

The characteristics of perfect competition are:

1. Many sellers: each seller represents a very small portion of the overall market.   Since supply and demand in the overall market set the equilibrium price and quantity, one small firm cannot influence the market price.  Each firm must accept whatever market price exists.  Because of this, firms in perfect competition are called price takers.

2. Identical products: you may see this referred to as standardized products, or homogeneous products.  Consumers have no preference for a product from one firm over the product of any other firm.  The products of each firm are perfect substitutes for one another.  There is no difference in quality.  Consumers would always choose to purchase the product from the lowest priced source.  Firms cannot differentiate products in any way, including packaging or advertising.

3. Easy entry and exit: new firms can enter the market freely.  This implies that economies of scale do not exist.  Existing firms can just as easily stop production and exit the market.

4. Perfect information: buyers know where the product is being sold, and at what price.  Sellers know the strategies used by their competitors, including price and quantity decisions.

Of course, not every market operates in perfect textbook fashion. Supply and demand...
tracking img