Perfect Competition

Perfect competition is a theoretical market structure that serves as a benchmark against which real-world markets are assessed. No real market fully satisfies all the conditions of perfect competition, but the model is essential for understanding how competitive forces drive outcomes and for evaluating the efficiency of other market structures.

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Assumptions of Perfect Competition

Assumption	Explanation
Many buyers and many sellers	Each firm is so small relative to the market that it cannot influence the market price
Homogeneous products	All firms sell identical goods — consumers perceive no difference between them
Perfect information	All buyers and sellers have complete knowledge of prices, costs, and market conditions
Free entry and exit	There are no barriers to entry or exit — firms can join or leave the industry without cost
No transport costs	Products can be transported costlessly (so location confers no advantage)
Profit maximisation	All firms aim to maximise profit
Factor mobility	Factors of production can move freely between industries