PERFECT COMPETITION market: definition, characteristics and examples

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The great importance of economic markets At present, especially in a situation like the one we have experienced in the last decade, it is necessary for us to understand some of the most relevant elements of the markets. To know one of these concepts, in this lesson from a TEACHER we are going to talk about definition, characteristics and examples of perfect market competition.

Perfect competition in a market means that none of the agents who participate in economic activity, be it companies or consumers, can influence the price of a certain good or service, so everyone accepts the price without the possibility of influence, and there is a situation of economic well-being on both sides.

In situations of perfect competition in a market there are a large number of products, and a large variation in the number of demand, so prices are regulated by supply and demand, without the need for any agent to use his influence to raise or lower prices unfairly.

It should be taken into account that, like almost everything that seems perfect, reality is very different from the theory we have just discussed. In the real world, the economy does not work in such a simple way, and the influence of agents means that on very few occasions it is possible to talk about a true perfect competition in the market, always existing hidden interests of some of the parties that modifies the market.

In this other lesson we will discover the different types of market competition.

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To better understand the definition of perfect market competition, we must talk about the main characteristics that has this economic situation, with special emphasis on those that help us to demonstrate whether there is perfect competition or not. Some main characteristics of perfect market competition are as follows:

• In perfect market competition there is a total equilibrium situation between supply and demand, and no economic agent can exert an influence that could change the price of the good or service. It could be said that thanks to the different economic elements the perfect market regulates itself.
• The absence of influence in the market also must happen from the state, since any type of state intervention such as subsidies or regulations makes competition no longer perfect. For this reason, sometimes there are markets that seem perfect, but that are influenced by the states, ceasing to be perfect.
• Prices are regulated by the law of supply and demand, since the market situation makes it impossible for prices to be modified at will. This does not mean that prices are the best for consumers, since even in perfect market competition there can be abusive prices.
• For the existence of perfect market competition the products of the different distributors they must be similar, there is not a great difference between the products offered.
• There must be a minimal or no entry and exit barriers to the market, since a perfect market is one in which anyone can enter or exit. The product market must be totally free, being the same for everyone.
• As all products must be the same there is also no type of marketing, since this would make them different from each other, although in any case there may be limited marketing if all the products carry it out.
• Mobility should be as comfortable as possible, there are no great difficulties when choosing a destination where to buy the product or a great ease of transport.

To conclude this lesson on perfect market competition we must talk about different examples in which we can see perfect market situations.

In theory, perfect competition is too ideal to exist, but we can find a series of similar examples, which meet some of the characteristics mentioned in the previous section.

Some examples of perfect market competition are as follows:

• Bakery: There are a large number of bakeries, among which there is not a great difference in prices, since bread usually always costs the same. This market in recent years is ceasing to be perfect, due to the arrival of bakeries that use new methods to lower the prices of bread.
• farming: The prices of agricultural products do not usually vary much, although it is generally due to the laws of the country. State intervention makes it not a completely correct example of perfect market competition, especially considering account that every day it is more common to buy from other countries, which violates many of the characteristics of the perfect competition of market.
• Gambling and betting: Bets are a perfect market, since it meets many of the main characteristics of this economic situation, as is the case for example with the stock market. Even so, due to its own characteristics, many economists do not consider it a market as such.
• Free software: A market with ease of entry and exit, and whose prices are set by the movement in the market, being the law of supply and demand which modifies the price, being therefore one of the best examples of market competition perfect.

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