perfect competition

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Also found in: Dictionary, Financial.

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 ?
However, even though cartel firms do earn lower profits than fringe firms, as in the case of a price-taking fringe, the set of stable cartels is not empty.
Uniqueness of the stable cartel for n [is not equal to] 4 is not a surprising result, given its existence, since [4] has derived unique stable cartels with a price-taking fringe.
An open question is whether the same pattern of preferences characterizes a market with a price-taking fringe.
Again, a question remains whether this result is also true given a price-taking fringe.
A price-taking fringe would produce a quantity such that price equals marginal cost.
This point is due to Jeff Daskin and contrasts with Rothschild's discussion of entry with a price-taking fringe [17].
Since Bertrand or price-setting behavior is not the same as price-taking behavior, the results of previous literature on stable cartels do not apply in this case.