PERFECT

COMPETITION
Market Structure
Content:

✗ Definition
✗ Characteristics
✗ Advantages
✗ Disadvantages
✗ Examples

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 1.
Definition
✗ The situation prevailing in the market in which large
number of well informed producers or sellers
producing and selling homogenous products.

✗ All elements of monopoly are absent.

✗ Examples (products):
Street foods, salt, vegetables, meat and etc.

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 2.
Characteristics
 A Large Number
of Buyers and
Absence of Sellers Homogenous
Transport Cost Product

Free Entry and Perfect No Individual

Free Exit of Competition Control Over The
Firms Market Supply
And Price

Perfect Mobility No Buyer’s

Perfect
of Factors Preference
Knowledge
 The number of buyers are so
many that a single buyer buys a very
small part of the market supply.
A Large
Similarly, a single seller supplies a very
small part of the total output. For this
Number of
reason, the size of a competitive firm
becomes very small in relation to the
Buyers and
industry to which it belongs. Sellers

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 All the sellers supply an
identical product. In other words, the
products of all the competitive firms are
the same. Homogenous
Product

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 A single firm cannot bring
about an appreciable change in total No Individual
supply through the variation in its own
supply. As a result, it cannot influence Control Over
the market price through its own the Market
independent action.
For this reason, it is described Supply and
as “a price-taker, not a price-maker” Price
and it has to sell all the units of its own
output at the prevailing market price.

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 There is no preference of
buyers for the product of any particular
seller. As the products of all the sellers
are identical, buyers can buy the product
from any of them.
No Buyer’s
Preference

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 Both buyers and sellers have a
perfect or full knowledge relating to the
price prevailing in the market. For this
reason, there can exist only one price in
a perfectly competitive product market.
Perfect
Knowledge

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 The factors of production like
labor or capital can freely move into the
industry or freely go out of the industry.
This is necessary to keep a proper
Perfect
balance between demand and supply of
a commodity.
Mobility
of Factors

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 In this type of market new
firm can freely enter the industry or an
existing firm can freely leave the Free Entry
industry in the long run.
and
Free Exit
of Firms

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 A market becomes perfectly
competitive when both buyers and Absence of
sellers stay at the same place so that Transport Cost
there is a close contact between them.
Because of this, neither buyers nor and a
sellers have to bear any transport cost. Close Contact
Also, if the same price is to between
prevail in all parts of the market, it is Buyers and Sellers
necessary that there is no transport
cost because prices will differ in
different segments of the market if it is
present.

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 A Large Number
of Buyers and
Absence of Sellers Homogenous
Transport Cost Product

Free Entry and Perfect No Individual

Free Exit of Competition Control Over The
Firms Market Supply
And Price

Perfect Mobility No Buyer’s

Perfect
of Factors Preference
Knowledge
 3.
Advantages
1. Chances of Exploitation is Very Low
In perfect competition, sellers do not have any
monopoly pricing power and hence they cannot influence the
price of product or charge higher than normal price from
consumers.

2. Consumer get standardized product

irrespective of the place
Consumer does not have to worry about quality and
price of a product because product will remain the same
whether consumer purchase it from different places.

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3. Consumer can shift from one
seller to another
Perfect competition is a consumer oriented market
so the sellers cannot displease the consumer because
consumer will quickly shift from one seller to another.

4. No Advertisement Expense
It has very little or no advertisement expense
because products are homogenous and if firm keeps the price as
decided by market forces then sales will automatically happen
without company incurring huge publicity and advertisement
expense.

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 4.
Disadvantages
1. No Incentive for Sellers to Innovate
or Add More Features to the Product
If sellers will innovate it will require them to charge
the price higher for the cost of innovation which is very wrong
for this type of market structure. Also, it will lead to a product
which is different from others.

2. Very Little Barriers to Entry

Implying that any firm can enter the market and
start selling the product, hence old firms cannot afford to be
complacent because chances of losing market share to new
firms always loom over them.

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3. Limited Consumer Choice
Perfect competition does not take into account the
consumer choice for goods produced are homogenous. So,
consumers cannot enjoy the pleasure of buying things of
different patterns, brands and packaging design according to
their taste.

4. Firms cannot Enjoy Economies

of Scale
Production on a large scale can not be done by
individual firms as firm output is relatively very small compared
to the overall market.

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 5.
Examples
Foreign Exchange Market
Here currency is all homogenous.
Also, traders will have access to many different
buyers and sellers. There will be good
information about relative prices. When buying
currency it is easy to compare prices.

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Agricultural Market
In some cases, there are several
farmers selling identical products to the
market, and many buyers. At the market, it is
easy to compare prices.

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Internet related Industries
The internet has made many
markets closer to perfect competition because
the internet has made it very easy to compare
prices, quickly and efficiently (perfect
information). Also, the internet has made
barriers to entry lower. For example, selling a
popular good on the internet through a service
like e-bay is close to perfect competition. It is
easy to compare the prices of books and buy
from the cheapest.

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Thanks!
Any questions?

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Group 1
Bea G. Manglicmot
Erika Dangan
Erika Quiestas
Freya Ortega
Rica Gatan
Adrian Ace Acosta
Dean Gabayan
Gerald Parangue
Iver Siose
Neil Klyde Bulalaque
Razilev Zaxx Tagapulot

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