perfect competition

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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).
References in periodicals archive ?
Although a monopolistically competitive economy yields inefficient equilibrium resource allocations, key features of the business cycle are not significantly different from those of a perfectly competitive economy.
Given a level of medical care chosen by the insured according to (4) and assuming a perfectly competitive health insurance market, the principal (the insurer) maximizes the expected utility of the insured subject to the zero-profit insurance policy constraint, which also incorporates the utility-maximizing medical care schedule.
When the downstream merchants are perfectly competitive (Scenario 1), or when the merchants are monopolies but their market power for excessively pricing to card customers is constrained (Scenario 2), the vertical system ends up with one monopoly-the card network.
Paradoxically, monopolized markets can be more creative, competitive, and welfare enhancing than the most perfect of perfectly competitive markets.
Now assume a perfectly competitive market, and let the parties to a bargain be S, a plaintiff-seller, and B, a defendant-buyer.
In the perfectly competitive model, all market participants are equally informed regarding the decisions of the other market participants.
(31.) Perfectly competitive markets are typically characterized by
In the standard model of monopsony, the supply side of a market is perfectly competitive and is represented by an upward-sloping supply curve.
Most firms engaged in international trade do not conform closely with the economists' ideal of being perfectly competitive. Firms exporting to the United States typically can mark up their homes-currency prices above their marginal costs and earn significant economic profits.
This theorem holds for the general design--location problem under the assumption that both input markets are perfectly competitive. However, if one of the input markets has monopsony power, this theorem may become invalid.
Mulligan and Tsui present a theory of competition for political leadership between incumbent leaders and their challengers in which the possible equilibrium political market structures range from pure monopoly (unchallenged dictatorship) to perfectly competitive (ideal democracy).
When markets are perfectly competitive and prices are flexible, prices are always equal to the marginal cost of production.