How to create perfect competition

A perfectly competitive market is a hypothetical market where competition is at its greatest possible level.  Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society.


1. There is perfect knowledge, with no information failure or time lags in the flow of information.  Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited.

2. There are no barriers to entry into or exit out of the market.

3. Firms produce homogeneous, identical, units of output that are not branded.

4. Each unit of input, such as units of lab our, are also homogeneous.

5. No single firm can influence the market price, or market conditions. The single firm is said to be a price taker, taking its price from the whole industry. The single firm will not increase its price independently given that it will not sell any goods at all. Neither will the rational producer lower price below the market price given that it can sell all it produces at the market price.

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