perfect competition

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Related to Competitive market: Competitive Market Analysis

perfect competition

(ECONOMICS) the IDEAL-TYPE concept of a ‘free market’ in which:
  1. there exist many buyers and many sellers;
  2. units of the commodity are homogeneous;
  3. where any one buyer's purchases do not significantly alter the market price. In addition, the assumption is also made that buyers and sellers possess full information, that there is freedom of entry to the market for new producers. who are able to sell on the same terms as existing producers. The further implication is that no producer is in a position to make ‘excess profits’. Thus perfect competition is often equated with maximum economic efficiency Equally, however, it must not be ignored that the model is an ideal-type one. Thus, although real world conditions will sometimes be found which approximate to the ideal type, often they do not (see MONOPOLY). And there can be no assumption that the achievement of‘free market’ conditions will always produce optimum, efficient and ‘fair’ outcomes for all parties concerned (compare CAPITALIST LABOUR CONTRACT, UNEQUAL EXCHANGE).
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