Question

What are some examples of perfect competition?

Answer 1

Perfect competition takes some assumptions into account, which will be described in the following lines. However, it is important to note that it refers to a theoretical preposition and not a reasonable, provable market configuration. Reality might approach it a few times, but only scratching the shell.

As an Economics undergraduate, the closest I see from a perfectly competitive market in many economies is agriculture.

A perfectly competitive market has 4 important elements:

1) Homogenuous product
2) Great number of intervenients
3) Perfect information
4) Free entry and exit

1. Homogenuous product refers to a non-differentiated product, which will commonly (but not always) mean a commodity: how can you differentiate beans, rice, potatoes (in the farms, of course)? You just can't.

2. There are so many suppliers and demanders in that market that one single agent - be it buyer (demander) or seller (supplier) - will not affect the market significantly, be in terms of pushing or restraining price or quantity.

3. All agents - buyers and sellers - have all the information about the product and the market, so no one is actually in advantage at any possible aspect when negotiating (this usually can be translated as 'every agent can be replaced easily').

4. There are no barriers to entry - nor exit. This is important, because only monopolies and oligopolies present barriers. And why is that? That is because monopolies and oligopolies do have economies of scale (besides other elements), which make it difficult or impossible for any firm to join their markets; as, in our case, no agent detains any market power, it is perfectly correct to assume there are no barriers for entry / exit.