Perfect competition

market structure in which firms are price takers for a homogenous product

In economics, specifically general equilibrium theory, a perfect market is defined by several idealizing conditions, collectively called perfect competition.


  • To reach this highest form of competition, a market must have two characteristics: (1) The goods offered for sale are all exactly the same, and (2) the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price. Because buyers and sellers in perfectly competitive markets must accept the price the market determines, they are said to be price takers. At the market price, buyers can buy all they want, and sellers can sell all they want. […] Despite the diversity of market types we find in the world, assuming perfect competition is a useful simplification and, therefore, a natural place to start. Perfectly competitive markets are the easiest to analyze because everyone participating in the market takes the price as given by market conditions. Moreover, because some degree of competition is present in most markets, many of the lessons that we learn by studying supply and demand under perfect competition apply in more complicated markets as well.
    • N. Gregory Mankiw, Principles of Economics, 8th ed. (2018), Chap. 4 : The Market Forces of Supply and Demand
  • The profit motive is inherently expansionary: investors try to recoup more money than they put in, and if successful, can do it again and again on a larger scale, colliding with others doing the same. Some succeed, some just survive, and some fail altogether. This is real competition, antagonistic by nature and turbulent in operation. It is the central regulating mechanism of capitalism and is as different from so-called perfect competition as war is from ballet.
    • Anwar Shaikh, Capitalism: Competition, Conflict, Crises, Oxford University Press, 2016, p. 14

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