Perfect Competition

Market Structure
The term „market structure” relates to the number of market participants, their shares in this market and means of making decisions that determine prices, demand and supply.

Types of Market Structures
Demand side
perfect competition (pure competition)
imperfect competition:
monopsony competition
oligopsony
monopsony
Supply side
perfect competition (pure competition)
imperfect competition:
monopolistic competition
oligopoly
monopoly

Features of Perfectly Competitive Market (PCM)
There are many sellers in the market. Each seller has a very small market share of total sales.
The products sold in the market are homogeneous, which means that each seller’s product is identical to that of other sellers. A homogeneous product is one that is standardized. One seller’s product is a perfect substitute for that of any other seller.
Buyers have perfect information on products sold by different sellers.
There is freedom of entry and exit by sellers. This means there are no restraints preventing firms from entering the market, nor are the difficulties in ceasing operations.

Examples of Markets Close to PCM
Agriculture:
potatos
beets
wheat

Price of Standardized Good in PCM
Price does not depend on firm’s decisions (its production and supply). It is determined in the market. Every firm in PCM is pricetaker.

Means of Competing
There is no price competition and non-price (e.g. marketing) competition. No seller in the market regards competing sellers as a threat to its market share.
To achieve its purpose (maximize profit), firms can only change their volume of production.

Individual Demand Line