We explain what the perfect competition market is and what its characteristics are. Also, the consequences it presents and examples.
What is the Perfect Competition Market?
A market of perfect competition is a theoretical situation of the market in which the ideal conditions of supply and demand exist so as to be governed only by the laws inherent to economic competition, without the intervention of outside forces.
It is an ideal, imaginary model that serves as an expectation for the study of market dynamics , but is not achievable in everyday reality.
In a perfect competition scenario, a balance would be reached between the factors involved in the economic circuit, which would increase the benefits of all parties.
Thus, companies lack the power to determine prices and control the flow of merchandise , so only the laws of supply and demand will govern the value of products.
In the same way, there will be no regulations, monopolies or protections that prevent free competition between producers and marketers of goods .
Characteristics of the perfect competition market :
In a perfectly competitive market, marketing would lose its meaning.As we said before, the perfectly competitive market is a situation of equilibrium between supply and demand, which standardizes consumption and regularizes benefits for all participants.
It is, in this sense, the opposite of monopoly situations , since no company could exert a greater influence than the others on the market and, for example, marketing would lose its sense of being.
For there to be a market of perfect competition, there can be no subsidies, regulations or protections of any kind , since companies must compete with each other freely, but neither must any form of monopoly, hoarding or business influence over the product circuit, as occurs in the oligopoly , where a small group of producers exercises its power over the rest of the chain.
Thus, market transparency is necessary, thanks to which all the sectors involved in the chain have full knowledge of the general conditions of their operation, and matters related to price and quality are freely managed .
Prices without influence
Companies cannot exercise strategies to fluctuate prices.
Prices in a market of perfect competition must obey solely and exclusively the laws of supply and demand , which means that companies are price-accepting, that is, they do not exercise any strategy to fluctuate prices, such as reducing prices. production or discount sales strategies.
Similarly, the products would have to be identical for each market chain , so that each consumer does not care, from the outset, consuming one or the other product, so there is no need for marketing campaigns or convincing strategies. the client’s.
Companies must be able to enter and exit the market without limitations.
It is a prerequisite for a market of perfect competition that the implements necessary for production are accessible in other regions and under equal conditions, to equally favor those who use them.
On the other hand, companies must be able to enter and exit the market without any type of limitations (entry or exit barriers).
It has already been said that homogeneity between products and production conditions would make unnecessary efforts to distinguish one product from others, seduce the purchase of one over the other, or construct other types of legitimation discourses. Therefore, marketing and commercial promotion do not exist in these types of models.
Differences between perfect and imperfect competition
An imperfect market is full of inequalities.
The difference between a perfectly competitive market and an imperfect one lies in the obstacles inherent in the circuit of a given market in real life , which are due to the multiplicity of elements and factors that necessarily intervene in the equation.
Thus, “imperfect” markets are so because this cycle does not occur without stumbling blocks or twists, but is full of inequalities and accidents that distort its ideal, that is, perfect, functioning.
Perfect Competition Market Feasibility
In real life it is not possible to build this type of market model . All the competencies between the producers of goods in the real world occur in terms of inequality, competitiveness that is not always sincere, monopolies, oligopolies and laws of protection and exclusion by the States , everything that conditions or controls their operations.
The supposed “invisible hand of the market” that the economic theories of early capitalism explained is rarely allowed to act on its own in the markets, since all the sectors involved fight to be the ones that benefit the most and condition the economic dynamics with their actions. of their products.
Consequences of the perfect competition market
Without the pressure of competitiveness, market innovation declines.
Although it is an imaginary model, this type of market would have the following consequences:
- Positive The increase in the well-being of all members of the chain is guaranteed, since free competition without interference from any element that generates inequalities provides homogeneous consumption.
- Negative Without the pressure of competitiveness, innovation in markets declines and stagnates, eventually reducing the supply of products and services, and discouraging investment in technology.
Examples of perfectly competitive market
There are no real examples of a perfectly competitive market, but we can imagine a circuit in which there are the same number of hammer producers, with access to similar materials in terms of raw material and similar sales opportunities within the hammer market. hammer marketing. Without marketing, consumption would depend only on what consumers need.
In theory, the prices of hammers will fluctuate according to supply and demand , that is, they will be bought more when they are needed and they will rise in price, but then less and they will fall.
The competition will be perfect as there will be no state regulation of the price , no limitation to the production of hammers and no hammering monopoly in the country.
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