Perfectly Competitive Market
Perfectly competitive market is a market consisting of informed buyers and sellers in which there is no possibility of monopoly. Therefore, the price of goods is affected by the amount of demand and will not be directly related to buyers and sellers.
Perfectly competitive markets are contrasted with imperfect markets. Imperfect markets are markets that are created due to not meeting the standards required for a perfectly competitive market. The noteworthy point in this regard is that the default form of markets is its incomplete model.
Conditions of formation of a Perfect Competition Market
To create this type of ideal market, we must have the ability to respond to some special needs. By examining these requirements, we realize that the conditions that need to be put together for the formation of this market are extensive. The extent of these conditions prevents them from happening in the short term in any market with any approach.
The conditions required for the formation of this type of market are as follows:
1. Permanent Presence of Companies
There is no factor or scale to reduce the number of jobs. In a perfectly competitive market there are always jobs.
2. Sameness of Products
All the products offered in this market are uniform with each other. Because in this market, no seller is better than others in offering similar products.
3. Availability of Price
In this market, all products are offered with predetermined prices, and no participant is allowed to determine the market price.
4. Absence of Obstacles
Entry and exit of all businesses in a perfectly competitive market is possible at any time and without barriers.
5. No cost
Participation and entry in this type of market is free of charge.
6. There are Many Buyers and Sellers
The first condition in a perfectly competitive market is to have a significant number of sellers and buyers to operate.
The mobility of active factors in the market happens if they are in harmony with the growth and long-term conditions of the market.
8. Maximum Profit for Sellers
Salespeople sell in areas that include the possibility of the highest income.
Advantages of a Perfectly Competitive Market
1. Complete Knowledge
Knowledge in the market domain is equally divided between buyers and sellers.
Due to the fact that there is no monopoly, it is possible to enter and operate smaller businesses without significant obstacles.
Profitability in a perfectly competitive market is enough to cover the basic costs of sellers and have inventory balance.
4. No Need for Branding and Marketing
Due to the level playing field in this type of market, businesses don’t have to spend huge amounts of money on advertising and branding.
Disadvantages of a Perfectly Competitive Market
The advantages that were expressed for this market model were based on the premise that the conditions for creating a perfectly competitive market can exist. But this assumption is not very logical and realistic.
2. Lack of Bias in Decision-Making
Decision making in business is rarely perfect. The perfect competition market model ignores the bias that exists in relation to the decision to enter this market.
3. Lack of Differentiation Between Products
Due to the similarity between the products offered in this market, it will not be possible to innovate for the production of products.
Up To Sum
Considering the conditions that were stated for the creation of a perfect competition market and despite the advantages that this market has, it is not easily possible to create it in the real world. Because in the real world there are many barriers to entering and exiting the market in this style. In addition, the information that buyers have about sellers and the exact prices set by them is limited and incomplete. Also, sellers generally do not share their production methods with competitors.