Perfect competition in the market. What does it consist of?

Economically speaking, companies converge in a market, in which they compete with other companies, to have an image, to enter the mind of the consumer, achieve higher sales and thus obtain the profits and expected growth, the environment of that market determines the form of competence.

The perfect competition in the market suggests that no agent can influence the price of the product or service, but rather is given by the interaction of all of them under equal conditions.

When we speak of perfect competition, we refer to an almost ideal economic situation, but in reality unlikely, as there are actually very few markets that could be considered to fall into this category of market.

What is perfect competition in the market?

It is an idealized and abstract form of markets, in which the interaction of supply and demand determines the price, allowing greater efficiency when allocating resources.

Therefore, you can define perfect competition as the market in which many sellers and buyers coexist without any of them individually being able to exert decisive influence on the price, that is to say, the companies do not have enough power to determine said price, therefore, they do not impose the rules of the game. This results in the interaction between bidders (companies) and plaintiffs (customers) is the one that determines the price and everything will depend on the product in question with a price fixed in a current way according to the laws of supply and demand.

As a usual rule, the consumer is the price-acceptor, however, sometimes producers can influence prices considerably, thus, the model of perfect competition is not suitable for all markets, a sector in which producers are price-accepting is considered an industry perfectly competitive.

Conditions for perfect competition

Many expert economists and others have cited the characteristics that the market must have for a perfectly competitive industry to exist, among these are:

Free concurrence

• There must be a large number of companies without any having the ability to influence the price, causing the maximum welfare for all participants.
• None of these producers can have a larger market share.
• Agents participating in production can enter and exit the market immediately in response to economic incentives.
• The companies with time already established do not have any advantage, with respect to the new companies.

Existence of a homogeneous and little differentiable product

• Participants can decide to produce what they want.
• In the different market segments, the product is the same.
• The consumer perceives the products as the same and is indifferent to buying that of one or another company.
• In this market idea there are no marketing campaigns.
• The producers do not seek strategies that improve their products with respect to their competitors, since it goes against the exaction of product homogeneity.

Perfect information

• Depending on the existence of a truly homogeneous product, the information on products and prices must be fair, transparent and clear.
• The mobility and transaction costs of the resources are not significant.
• Any consumer can access any product from any company.

Absence of barriers

• They must not exist entry barriers or exit, that is, any company can participate in the business whenever it wishes or otherwise abandon it, without this involving a greater deployment of resources.
• There must be complete information on possibilities and alternatives, which allows the perfect mobility of factors, resources and subjects, that is, they can move quickly to the best possible alternative in each moment.

Currently a market with these characteristics is very difficult to find, so that this perfect competition is present, companies must first maximize your profit, in this way the market reaches a certain equilibrium and the supply is equal to the demand.

Unfortunately, today many companies directly or indirectly exercise control over different market segments and hinder perfect industry competition.

Disadvantages of the perfect competition market

Although it is considered the most convenient market situation, due to the fact that the remuneration is more efficiently from the resources of society, this type of market has certain disadvantages that are described below. present:

• East market type discourages advancement and technological progress due to lack of competitiveness.
• It does not allow diversity of products, they are standardized and equalized.
• Slow innovation.
• Sometimes it does not satisfy the tastes and needs of the consumer, due to the homogeneity of the product.
• It lends itself to corruption and lack of ethics.
• Facilitates the existence of poor quality products and / or services.
• Contributes to lack of social growth.

To conclude, it is important to say that in reality there are no totally competitive markets, it can be affirm that in their place there are similar products that suppose a market in conditions similar to those intended for the market of perfect competition.

This model has been quite controversial and strongly criticized, since it is difficult to think of finding one or more than one of the conditions or characteristics necessary for it to occur. perfectly, because in fact in economic reality there are strong entry and exit barriers, a marked and strong product differentiation that totally invalidates the assumption of homogeneity of the product, in addition and the most outstanding a strong business concentration in business groups with great economic power and other situations that differ greatly from the perfect competition.

For all this, the market model in perfect competition is admitted more as a theoretical model, which is useful for the study of economic agents in similar and opposite cases. In reality, the closest thing to an example of perfect competition is in the markets of agricultural products, where there are many producers and sellers of similar products at similar prices with a large number of buyers.