Perfect Competition in Market

Pure or perfect competition is a theoretical market structure in which the following criteria are met: All firms sell an identical product (the product is a "commodity" or "homogeneous"). All firms are price takers (they cannot influence the market price of their product). Market share has no influence on prices.


A perfectly competitive market is a hypothetical extreme; however, producers in a number of industries do face many competitor firms selling highly similar goods; as a result, they must often act as price takers. Economists often use agricultural markets as an example of perfect competition.


Examples of perfect competition
  • Foreign exchange markets. Here currency is all homogeneous. ...
  • Agricultural markets. In some cases, there are several farmers selling identical products to the market, and many buyers. ..
  • Perfect competition has 5 key characteristics:
    • Many Competing Firms.
    • Similar Products Sold.
    • Equal Market Share.
    • Buyers have full information.
    • Ease of Entry and Exit
     

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