Features of Perfect Competition Market.pptx

Features of Perfect Competition Market.pptx

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  Features of PerfectCompetition Market 1 Dr. Baranipriya A Assistant Professor Department of Economics Sri Ramakrishna College of Arts & Science Coimbatore - 641 006 Tamil Nadu, India
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  Features of PerfectCompetition Market  Many Buyers and Sellers – There will always be a huge number of buyers and sellers in this form of marketplace. The advantage of having a large number of small-sized producers is that they cannot combine to influence the market price. If the quantity offered by an individual seller is very small compared to the total market produce, they cannot influence the market price independently.  Similarly, if there are many buyers, then an individual will not have the power to dictate conditions to the market or influence the price by altering demand for a product. The individual demand will not be large enough to change the price.
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   Homogeneity –The product or service produced by the buyers in a perfectly competitive market should be homogenous in all respects. There should be no differentiation between them in terms of quantity, size, taste, etc., so that the products are perfect substitutes for each other. If a seller tries to charge a higher price for products that are so similar, they will lose their customers immediately.  Free Entry and Exit – Another condition of a perfectly competitive market is that no artificial restrictions prevent a firm’s entry, or compel an existing firm to stay put when they want to leave. Their decision to enter, stay or leave the market depends purely on economic factors.
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   Perfect Knowledge– The buyers and sellers have perfect knowledge about the market conditions. The buyers are aware of the details of the product sold as well as its price. At the same time, the sellers know about the potential sales of their products at different price points. Since the buyers are already informed about the product, there is no need for advertising or sales promotion. So firms don’t have to invest a single penny in these activities. It also helps sellers save on advertising or other marketing activities, which keeps the price of their products low.
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   2. GrowthStage  If the product continues to thrive and meet market needs, the product will enter the growth stage. In the growth stage, sales revenue usually grows exponentially from the take-off point. Economies of scale are realized as sales revenues increase faster than costs and production reaches capacity.  Competition in the growth stage is often fierce, as competitors introduce similar products. In the growth stage, the market grows, competition intensifies, sales rise, and the number of customers increases. Price undercutting in the growth stage tends to be rare, as companies in this stage can increase their sales by attracting new customers to their product offerings.
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   Mobility ofFactors of Production – The factors of production like labour, raw materials and capital should have total mobility under perfect competition. The labour should have the freedom to move from one place (industry, market or production unit) to another depending on their remuneration. Even the raw materials and capital should not have any restrictions in movement.  Transport Cost – In the perfectly competitive market, the costs for transporting goods, services or factors of production from one place to another is either zero or constant for all sellers. The assumption is that all sellers are equally near or farther away from the market. Thus, the transport cost is uniform for all of them. The result is that the overall costs for production and the selling price are the same across the board.
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   Absence ofArtificial Restrictions – There is no interference from the government or any other regulatory body to hinder the smooth functioning of the perfect competition. There are no controls or restrictions over the supply or pricing and the price can change solely based on the demand and supply conditions.  Uniform Price – There is a single uniform price for all products and services in a perfectly competitive market. The forces of demand and supply determine it.
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  Thank You