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Perfect Competition

Conditions

Many players offering identical products

There are two things to unpack in this condition. First, there must be many many companies. This is clear, if there are 3 or 4 companies offering one product, it’s not a perfect competition, it’s an oligopoly.

Additionally, they should be offering identical products. After all, if the products differ a little bit, then these companies aren’t directly competing. Snapchat and Twitter aren’t technically direct competitors, because they offer different products.

No barriers to entry

This means that it’s easy to enter and exit the industry. For example, not just anyone can go an make an airline, you need billions of dollars to assemble a fleet of aircrafts, create contracts with airports. Additionally, other airlines spend money on advertisements, which you are unable to do without enormous funds.

No Influence on the Price

When there are so many competitors, one’s actions don’t really affect the price. If a corn farmer in Iowa decides to produce more, that’s such a small percentage of the entire US corn industry, that prices wouldn’t budge.

Examples of Almost Perfect Competition

Stock Markets

Let’s go through the list. There are millions of people holding stocks and offering the same Facebook stock. This means that there are many players that are offering the same product.

Additionally, anyone can set up an account on Robinhood and buy a Facebook stock, it doesn’t require a big firm.

When one person sells a stock, it has an extremely minute effect on the stock. For this reason, we just say that each individual has no influence on the price. Here is what makes it almost perfect. There are corporations (and wealthy individuals) selling massive amounts of stock; this influences the price.

Exchange Rates