What is perfect competition?

A definition of perfect competition is the situation of mercado in which companies do not have sufficient capacity to determine the price of the items they sell, so they cannot impose the rules of the game. What will determine the price will be the interaction between customers and companies, or buyers and sellers.

In this situation of perfect competition, there is a high number of customers, which together with a significant number of sellers, prevent either party from exerting an influence on the price, which will be determined based on the laws that establish the supply and demand.

Characteristics of Perfect Competition

The concept of perfect competition must meet a series of factors for it to be considered as such:

  • There should not be one company with superiority over the rest: all companies participate in the market on equal terms. This prevents the market from being concentrated in a few, as would happen in a monopoly, when an entity exclusively exploits some part of the trade. In this way the market share.
  • No one will be able to influence prices: neither seller nor buyer. It will be the market itself that will take care of setting the price, so it will not be too high or too low. The first option would reduce consumption and lead to overproduction, while the second option excessively promotes consumption and discourages manufacturing.
  • Homogeneous product: the product must be the same, so the customer will not care to buy it from one company or another.
  • Lack of marketing: They don't invest in marketing to differentiate their articles from the competition, since it would go against the principle of homogeneity.
  • Transparency: economic agents are aware of both the characteristics of the products and the rates. Thus, they make the purchase decision the most correct.

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