Last Updated 15 Jun 2020

Characteristics Of Perfect Competition

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Singular Product
The prime characteristic of perfect competition is the existence of one single product that is sold by all suppliers at a common price, with the quality of the product being the same. This implies that the product is purchased from a supplier does not affect the buyers because of its same price and quality.

Innumerable Buyers and Sellers

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The number of buyers and sellers in the market are infinite. Since only one product is being sold in the market, no single buyer or a seller can determine or influence the price of the product. The price is determined by the market as a whole, depending on the total demand and requisite supply of the product in question. For instance, the process of producing or growing wheat is similar, and so is the final product. As such, wheat prices are usually similar everywhere. Only a drastic change in the demand and supply of wheat can cause its prices to be altered.

Clarity of Information
This is another characteristic of perfect competition. The buyers are completely aware of and are exposed to information about the production process and its economics. Thus, the market conditions are known to everyone, and this knowledge causes the price to remain constant among all suppliers.

Costless Transactions
Neither the buyers, nor the sellers incur any costs in the transactions that occur among them. That is to say, that when a buyer buys, he does not incur any cost apart from the cost of the product, where similarly, the supplier does not incur any cost while selling the product to the buyer. This is known as perfect mobility.

Maximum Profits
In a perfect competition, suppliers only aim for profit maximization. They are not concerned with customer retention and revenue maximization. Profit maximization is determined by the quantity of product they sell. When the marginal cost, or the cost incurred by the production of a single unit of the product is equal to the marginal revenue, that is the revenue attained from the sale of this single unit of product, a producer will stop producing the product.

This is a stage where the profits are maximized, and losses are minimized. The profit is a component of the entire cost structure, which, if not achieved, causes the supplier to exit the market.

No Barriers to Entry and Exit
Every supplier has a relatively small market share due to the existence of one single product being sold by different suppliers. As such, any supplier is free to enter the market at his will, and exit when he wishes to do so. The absence of such barriers does not affect the prices as ideally, there is always a substitute for a supplier who enters or exits the market.

Absence of transport cost:
Under perfect competition transport, cost does not exist. Since commodities have, the same price it logically follows that there will be no transport cost. In the event of the presence of cost of transport, there will be no single price in the market. Transport cost occurs when there is no perfect knowledge of the market conditions on the part of buyers and sellers.

No attachment:

There is no attachment between the buyers and sellers under perfect competition. Since products of all sellers are identical and their prices are the same a buyer is free to buy the commodity from any seller he likes. He has no special inclination for the product of any seller as in case of monopolistic competition or oligopoly. Theoretically, perfect competition is irrelevant. In reality, it does not exist. So it is a myth.

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