Competition

Perfect Competition

The hypothetical world with which the concept of perfect competion is concerned is one in which the market for each category of product has the following characteristics:

    (a) All market shares are small. No supplier enjoys a share of the market which is 

large enough to enable him to influence the price of that category of product.

    (b) No collusion.  Each supplier acts independently.
    (c) No barriers to entry. There is nothing to prevent any new supplier from entering 

the market for any category of product.

    (d) Homogeneity of product. All suppliers of each category of product are known to all
buyers to supply identical products.

Suppliers are assumed to maximise their products and buyers are assumed to seek value for money. After a settling-down period, a market price emerges for each category of product. A supplier who attempts to sell a product above that price will find no buyers and a buyer who attempts to buy a product at below that price will find no sellers.