Perfect competition is defined as the market structure where there is a large number of buyers and sellers within the homogeneous products, selling at a uniform price. In this market, both buyers and sellers have perfect knowledge regarding price. Firms can not change prices according to different situations. The price of the product is determined by the industry and all firms under the industry have to accept the price determined by the industry. Therefore, the industry is called price maker and the firm is called price taker. In a perfect competition market, the seller can sell any amount of the commodity at the ruling price or existing price.
Mrs. Joan Robinson has said, ”Perfect Competition prevails when the demand for the output of each producer is perfectly elastic.”
According to K. E. Boulding, ”A Perfect Competition market may be defined as a large number of buyers and sellers all engaged in the purchase and sale of identically similar commodities, who are in close contact with one another and who buy and sell freely among themselves.”
Features of perfect competition:
- There are a large number of buyers and sellers. So, a single buyer or seller can not influence a market price.
- All firms under perfect competition produce homogeneous goods.
- Every firm is free to join or leave the industry.
- There is no government intervention in the market.
- There is perfect mobility of factors of production.
- There is perfect knowledge of the market regarding the price and quantities of the commodity.
- The objective of all the firms is profit maximization.