Perfect competition

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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.

The market for dairy products is close to perfect competition.