Perfect Competition Market Definition, Characteristics, and Examples

Before starting a business, it helps you really know what kind of business you want to run. This may sound cliché, but knowing business theory is also important for aspiring entrepreneurs. That way, the determination of the strategy can be done well.

There are various marketing strategies that you can do. This should start with the identification of the market so that you can find out the target consumers and business projections in the future. Many people aim for a perfectly competitive market to start a business when they want a simpler production process.

Understanding Perfect Competition Market

Perfect competition is an economic term that refers to the theoretical market structure of all suppliers are the same. Usually, in a situation like this the supply and demand as a whole are in balance.

For example, when there are several firms producing a commodity and no individual firm has a competitive advantage, perfect competition occurs. In this ideal market, quality is comparative between companies. That way, buyers can also choose products with the lowest prices.

Perfect competition occurs when there are many sellers who compete with each other, easy to enter and leave the company, and the product variants they sell are identical from one seller to another, and the seller is the price taker.

Characteristics of Perfectly Competitive Market

Experts studying macroeconomics and microeconomics use this idealized construct as a benchmark against which to compare real market operations. The following characteristics emerge from the existence of a perfectly competitive market.

1. Homogeneous products: all products produced by business actors are the same product and are used as commodities. The basic aspects of the available products are consistent, including the overall product quality.
2. Price equity: products are sold at marginal cost of production so that no one firm has the power to charge more. Other companies will undercut whichever company charges a higher price. The amount of market demand is also relatively stable in the long term so that all producers have the same market share.
3. Advantages: there may be short-term advantages for each company to be accepted by the market more quickly. New producers entering the market will lower the demand curve so that no one is able to raise the price of the product to maintain profits.
4. Free to compete: There are no barriers to entry or exit in perfect competition. Start-ups can be competitive companies. This is due to the cost of producing the product which is the same as any other. In addition, leaving the market does not incur costs for producers.
5. Rational buyers: all buyers make rational purchases to maximize economic considerations in search of lower prices. In addition, buyers already have information about the product so that they know the price comparisons of competitors.
6. Mobile resources: the labor and capital involved are volatile and can move according to your needs or wants without any associated costs.
7. Regulation: the process of making, selling or using goods does not affect third parties. Thus, there is no need for permits or government regulations to carry out operational activities.

Perfect Competition Market Example

A perfectly competitive market may already be of its kind around you. However, you may not realize that such a market has the potential to do business. Maybe you've also just asked about this type of business. To understand it, here are some examples of perfectly competitive markets in everyday life.

In contrast to a monopoly market where a producer has complete control over the market, examples that resemble ideal perfect competition include the following.

• Fisherman's market: The fishing market is perhaps the closest real-life example of perfect competition. Small manufacturers sell nearly identical products at very similar prices. The entry and exit of multiple vendors does not change the market as a whole. In addition, prices and product information are clear and uniform.
• Discount brands: there may be cheaper versions when shopping for a product at the supermarket, such as cereal made by a different brand. However, neither of these substitutes will differ significantly in quality or price so selling discounted goods also resembles a perfectly competitive market.

Those are various potentials and market conditions that can be applied in your business activities. Keep in mind that you can also learn the right pricing strategies so that your business can compete.

The importance of this for stakeholders encourages prasmul eli to create a Marketing Pricing Strategy program. Through this program, company executives are expected to be able to understand pricing strategies that are profitable for businesses.