Perfect competition is an economic term referring to the condition when there is so much competition between vendors that a seller would lose customers if he raised prices at all. Firms that are in a perfectly competitive market are thus referred to as "Price takers". In essence, a perfectly competitive market structure has no market power. Such a market is good from the consumer's perspective. A perfectly competitive market must:
- Have products which are perfect substitutes for each other.
- Have many companies in the market.
- All the companies must have identical costs for their supplies.
- The consumers must be fully informed about the products.
- Free entry and exit (No barriers to entry) - it is relatively cheap for both new firms to enter the industry and for old firms to leave.