Perfect competition

The perfect competition that occurs within a given market is what happens when none of the agents that participate in the market can exert some kind of influence on the price of a specific product or service, this means that, the Sellers and buyers are price-takers . It is a type of a market in which there are a large number of producers for the same homogeneous product or service , where the demand curve is very accessible and changing and the market price originates from the interaction between suppliers and demanders.

At the moment when we talk about perfect competition, we are referring to an almost ideal economic situation and which at the same time is very unlikely to happen in reality since in the real world there is no such simple, perfect and ideal economy . However, the perfect economy can be a very useful tool in the economic study of markets that, in some cases, can come to resemble each other, but the truth is that very few types of markets can be considered totally or perfectly competitive. In some economic aspects, we can observe some types of similar markets in the agricultural sector , in theauctions or in the commodities market , to a lesser degree.

Characteristics of perfect competition

• The companies that comprise it are price-accepting : It means that many of the companies that are competing within the market face a significant number of competitors directly. Each included company can sell a small enough part of its total production since its decisions do not influence the market price , and therefore they are considered as price-takers. This feature applies to consumers and businesses .
• Perfect competition enjoys adequate product homogeneity , that is, the products are the same or at least have very similar characteristics. Thus, no company can charge more than another as they could lose their business due to competition . This characteristic is very important because it guarantees the existence of a single price in the market, determined by supply and demand .
• Freedom of entry and exit that guarantees that there is a different cost that hinders a new company entering an industry and producing, or leaving without obtaining any type of profit. Buyers have the facility to switch suppliers without problems and suppliers can easily enter or exit the market, and this generates competition between companies.
• There is true transparency within the market as market participants, regardless of whether they are buyers and sellers, know for sure the general market conditions , and have sufficient information about the prices and quality of the products that are being sold.

Perfect competition assumptions

• The individualism . It is responsible for conceiving the social aspect as a juxtaposition of individual interests and seeks to obtain the ends of individual origin to achieve the best of the possible states for a community.
• Rational behavior . An agent will be rational when the following requirements are met: pursue ends that are consistent with each other and use means to achieve those ends appropriately.
• Selfish behavior . The agents will take into account only the decisions that grant them a greater utility individually, regardless of the decisions that other people make or the effects that they may cause.
• Maximizing strategy . Agents face a maximization problem under two different types of constraints: profit maximization to producers and maximization to consumers .

Advantages of perfect competition

• There are many sellers and buyers who want to sell or get a certain product.
• The products are homogeneous , which means that there is no difference between them regardless of the company that is offering them.
• Buyers and sellers have good information as this is an important aspect of perfect competition.
• It can be sold and bought freely between sellers and buyers so they have freedom of movement .

Disadvantages

• Neither sellers nor buyers have control over the selling price as they have no influence on the market price .
• Long it is not engaged in the development of strategies of marketing , market research , new product development or pricing because they do not play any significant role.

Examples of perfect competition

Cimaplas Group (Mexico)

They are responsible for producing plastic bags, brooms, cleaning supplies, and more. They offer the products at the same price, the competition is quite strong and the bidders are price-accepting since there is freedom of entry. If sellers make a profit, they lower prices so that they can compensate for the money invested in the companies.

Estebana (Colombia)

This is one of the examples of perfect competition that involves the wide range of hygiene and general cleaning products for the home, which we can see in all stores and shops. They thus become market products with perfect competition because there is freedom of offering among producers since there is ease of offering and advertising. Some recognized brands are: Fab, Ace, Soflan, Suavitel, Super Musculo, Ariel among many.