Characteristics of a Perfect Competition in business
Characteristics of a Perfect Competition
A company is part of a market where perfect competition exists if
1. There are a large number of producers and consumers. A large number of sellers are present in a perfect competition where not one company can set the price. The same is true on the part of the buyers. There should also be a large number of buyers in the market so that no one buyer can set the market prices.
2. There is a free access to information. Buyers and sellers should know about the operations of companies. With free access or free flow of information, buyers should be aware of the prices of all the products in the market.
3. There is free entry to and exit from the market. This characteristic of a perfect competition refers to the freedom of a company to enter a market and sell a product, and the freedom of a buyer to enter a market and buy a product. If the company desires to cease operations, it may freely do so anytime. If the buyer desires to stop buying, he/she may also freely do so anytime.
4. The products are homogeneous. If products in a market are homogeneous, they are almost of the same type and quality. Good examples of homogenous products are those coming from the agricultural product: rice in Farm A equals the quality of that in Farm B; eggs in the poultry farm of Farmer A are the same as those of Farmer B.
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