PERFECT COMPETITION
Characteristics of Perfect Competition
Perfect competition is an
industry in which consist of a huge numbers of buyers and sellers. Every firm
in perfect competition sells identical / homogeneous products which could not
be differentiated from one firm to another. Other than that, firms in perfect
competition are price takers. Every sellers and buyers are well informed about
the prices. Therefore they have no market power in the economy. Furthermore,
there are no barriers to entry into the industry, meaning that everyone which
decided to venture in this area of business can enter or exit anytime. Due to
all the following, established firms have no advantage over the new firms that
just enter the market.
As characteristics stated above are just theories, but they are rarely observed in the real world. Why? Because there are merely any fully identical (zero differentiation) products in the market. For example, even a product as simple as vegetables have differentiation between each other, the way they plant the vegetable, is it organic or inorganic and also the quality and freshness.
Furthermore, when a product comes closest to zero differentiation, its industry is usually consolidated into a small number of firms which becomes an oligopoly. For example, oil companies which sells petrol such as shell, Caltex, Petronas, and Petron. As a result, perfect competition may not exist in the real world.
As characteristics stated above are just theories, but they are rarely observed in the real world. Why? Because there are merely any fully identical (zero differentiation) products in the market. For example, even a product as simple as vegetables have differentiation between each other, the way they plant the vegetable, is it organic or inorganic and also the quality and freshness.
Furthermore, when a product comes closest to zero differentiation, its industry is usually consolidated into a small number of firms which becomes an oligopoly. For example, oil companies which sells petrol such as shell, Caltex, Petronas, and Petron. As a result, perfect competition may not exist in the real world.
By = Kah Hwang
A perfect competition is unrealistic as many of its conditions are quite difficult to fulfill. Especially no barriers to entry is very rare as even startup cost can act as a significant barrier.
ReplyDeleteyea, so true. There is nothing as 100% perfect competition in this world. every firm wants to out run the other competitors.
ReplyDelete