Introduction

Perfect competition
-It is a market structure with a large number of participants who are all price takers,there are no
entry or exit barriers in the long run,all information is available to both the buyers and sellers and
homogeneous products is sold.
Conditions for the perfect market
Products must be homogeneous
-product must be identical.The should be no difference in style,design and quality. -
In this way products compete solely on the basis of prices and can be purchased anywhere.
The should be a large number of buyers and sellers
-It should not be possible for one buyer or seller to influence the price.
-When there are many sellers the share of each seller in the market is so small that the seller
cannot influence the price.
-Sellers are price takers,they accept the prevailing market price.If they increase prices above the
market price,they will lose customers.
Preferential treatment
-The market is impartial and impersonal.No seller have an advantage over the other product of
another seller.
-The buyers do not have any personal reason for buying from certain sellers,they do not mind
from whom they buy.
-Market participants react only to the impersonal market signals sent out by price.
Freedom of entry and exit into the market
-The market is totally accessible.
-Buyers and sellers are completely free to enter or leave a market.
-There are no barriers to entry in the form of legal financial,technological,physical or other
restrictions.
-New firm can enter the market to compete with existing firms,this usually happens when
existing firms are making economic profits.
Perfect information
-Buyers and sellers have complete knowledge about prevailing market conditions e.g
price,quality and availability of goods and services.
-Sellers have completely knowledge about production costs and market opportunities. -
Buyers are fully aware of what is happening in any part of the market e.g if one seller raise
 prices,the buyers will know it and will purchase from seller that are still charging a lower price.
-Technology has increased competition as information is easily obtained via internet.
2. Characteristics of perfect competition

Characteristics Perfect Monopolies Monopolistic Oligopoly

competition competition
1.Number of So many Only one business A very large Small number of
business competitors that a that is on control. number. businesses .
single business
can not influence
the market price.
2.Market entry Market entry in Entry is Free entry and exit Entry into the
the perfect market completely into the market market varies
is completely free. blocked . structure. from free to
restricted.
3.Markets Both buyers and Buyers and sellers Information for Incomplete
information sellers have full have full buyers and sellers information
knowledge of all knowledge of all is incomplete. between buyers
prevailing market prevailing market and sellers.
conditions. condition.
4.Nature of the Products sold on Products/service Products are Products are
product the market are are unique with no differentiated. homogeneous .
homogeneous. e.g close substitutes.
maize
5.Collusion Impossible sellers Irrelevant,Only There are many Collusion is
act independently one firm. sellers and this possible.
from each other. makes collusion
impossible.

3. Pricing strategies of the perfect competition

-The perfect competition market has a huge number of sellers and buyers under it. Considering
the features of this market like no barrier’s to entry or exit,production of homogeneous products
and low market share it can be seen that firms under this market type are not in a position to
dominate hence they follow the system of market machanism.
-This means that they leave the decision of price determination on the market forces of demand
and supply and simply become price takers.Hence,firms under perfect competition follow the
strategic pricing done by the market and focus only on producing a profit maximizing output
where the marginal revenue is equal to marginal cost.
Monopolistic competition
:They use non-price competition.
-It is the competition on the basis of product differentiated efficient services and by using
advertisement rather than on the basis of prices .
-It is done by means of product variation and market campaigns.
-Brand names play an important role.
-Products are exactly the same as known brand.
-The goods events originate from the same factory.
4.Pricing decisions of perfect market