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Perfect Competition

A perfect competitive market reveals the following cardinal features.

(i) Large number of transistors, i.e., buyers and sellers individually can influence the price sought by the free play of forces of demand and supply.

(ii) Homogeneous (identical and standardized) products.

(iii) Freedom of movement, i.e., entry into and exit from the industry.

(iv) No transport and distribution costs to distort competition.

(v) No information costs to handicap the free flow of information about market data.

(vi) No firm enjoys any special cost advantage, i.e., all firm having identical cost conditions and access to external economies

Unregulated commodity markets are also highly, if not perfectly, competitive. For example, in an unregulated Indian foodgrains market, the individual grower is a price-taker. The grower cannot set his price independently of the other growers. Competition drives prices down to a minimum level and if a single grower decides to raise his price, buyers will switch to alternative suppliers.

In perfectly competitive markets, because the product is homogeneous, the competition can centre only on price. The demand curve faced by a producer is therefore, horizontal or perfectly price elastics