In a layman language market is a place where exchange of goods and services takes place. But nowadays market is not only limited to geographical areas, there is a whole new world of virtual market using the internet.There are many types of markets like monopoly,monopolistic, oligopoly etc. Through this article i would like to increase knowledge about the perfect competitive market.
Perfect competition is a market structure characterized by complete absence of rivalry,i.e, there are large number of sellers selling homogeneous products at same price.
CONDITIONS OF PERFECT COMPETITION
- LARGE NUMBER OF BUYERS AND SELLERS- There are large number of sellers and buyers in the market.No individual buyers or seller can influence the market conditions. The seller sells the product at a predetermined price and buyer buys a product at predetermined price.In short buyer and sellers are price takers.They have no bargaining powers.
- HOMOGENEOUS PRODUCT- The sellers sell same products.No discrimination is made on the basis of brand packaging or labeling. Products are perfect substitutes of each other.
- FREE ENTRY AND EXIT OF FIRMS- There are no restrictions on the entry or exit of firms. The firm can enter or exit the market at there own wish without any legal formalities.This is the reason why firms earn normal profits in the long run.If a firm is earning extra profits then more firms will join in the markets due to which firms will start earning normal profits again due to increase in supply of the product.
- NO INTERVENTION BY THE GOVERNMENT-As i earlier told you there is no role played by the law in perfect competition market therefore government doesn’t intervene in its working.There are no licencing or allocation of resources by the government for them.
- PERFECT KNOWLEDGE-All buyers and sellers have perfect knowledge of the market structure and the prevailing price in the market.
This kind of market doesn’t exist in the real because it is impossible to have complete knowledge about the market.Secondly it is not possible to sell homogeneous products at same price,for eg, we have two types of bread in the market Britannia and harvest different in terms of brand name, secondly each company charges different price at different locations like higher price is charged in hilly areas. Therefore this model exists only in the books of economics.