Perfect competition is an ideal market model

Perfect competition is a type of market where an infinitely large number of sellers offer buyers the same products, have free access to the industry, use common information about the price and the same best technologies.

Let's look at each part of this definition in detail.

So, the conditions of perfect competition:

1) There should be a significant number of sellers and buyers of this product on the market. Under such conditions, no buyer and no seller will be able to influence the market equilibrium alone , that is, no one will have the appropriate authority. All subjects are fully subject to the market element.

2) The sale of the same, standardized products. Examples of similar products: cereals or flour of the same class, sugar, etc. In such conditions, buyers will have no reason to prefer products of this or that firm - the quality is the same everywhere.

3) One seller can not influence the market price, because there are a large number of firms producing the same goods. Perfect competition implies that each individual seller will be forced to accept the price dictated by the market.

4) Non-price competition is absent, because the quality of goods is uniform.

5) Consumers have access to price information. This means that if any manufacturer chooses to raise the value individually, he will lose his customers.

6) Sellers do not have the opportunity to collude and raise prices, as there are too many of them in this market.

7) Perfect competition assumes that any seller can enter this market branch and exit it at any time, as there are no barriers to barriers. The new firm is created and closed without problems. It is assumed that the size of this is fairly small firms, so you can sell the business at any time.

Perfect competition is a market in which individual sellers do not have the opportunity to influence the market price by changing production volumes, since their share in the total market segment tends to zero. If the seller decides to reduce its production and sales, then the total market supply will change negligible. The seller is forced to sell their products at the current price, unified for the entire market. The demand curve for his goods varies elastically: if the seller sets a price higher than the market, the demand will drop to zero. And if you put the price below the market, it will grow to infinity, but this price can not be fixed because of production costs.

But elastic demand also does not mean that the seller will be able to increase endlessly output volumes at a constant price. It can remain constant until changes in the volume of production of this seller do not affect the production of the industry as a whole.

Perfect competition is an ideal market model, based on a theory that does not exist in real life. After all, goods from different manufacturers have their differences, and barriers to entry and exit from the industry uniquely exist.

In an approximate form, perfect competition is represented in some markets of agricultural products, among small market traders, construction teams, photo shops, retail stalls, etc. They are all united by an approximate similarity of the offer, a large number of competitors, an insignificantly small scale of business, the need to work at the current price - that is, they reproduce many of the above conditions for perfect competition. On their examples it is very convenient to study the functioning, organization and logic of the action of small firms using generalized and simplified analysis. In Russia and the CIS countries very often there is a situation in small business, close to perfect competition.