Perfect Competition

Ateneo Graduate School of Business
Paseo de Sta Rosa, Sta Rosa Laguna


Ateneo-Regis MBA Program

Group 1 Team Members:
Amorosa, Rhomina G.
Cervo, Ada Marie C.
Flores, Katrina S.
Karamihan, Madeline A.
Maghuyop, Gilbert L.
Reyes, Jose Rafael V.

Submitted to:
Dr. Enrico Mina


What is a Perfect Competition?

The concept of perfect competition applies when there are many producers and consumers in the market and no single company can influence the pricing.   All goods in a perfectly competitive market are considered perfect substitutes, and the demand curve is perfectly elastic for each of the small, individual firms that participate in the market. These firms are price takers--if one firm tries to raise its price, there would be no demand for that firm's product. Consumers would buy from another firm at a lower price instead.

When the market structure is free from competition and is in a state where a combination of a wide range of firms freely enters or leaves the market, that depicts a Perfect Competition. In this structure the sellers only sells a small share of the goods to the market and as such considers prices as information since they are not able to exert any noticeable influence on it. On the other end, the buyers are numerous and spread hence they also cannot influence the prices.

Characteristics of a Perfect Competition

Number of firms | Product type | Price as a decision variable | Market entry and exit | Distinguishing characteristic |
Many small firms | Homogeneous | No | Easy | Market sets the price |

According to Donald N. Stengel in Principles of Managerial Economics, this model is based on the following set of assumptions that represents a necessary but insufficient condition to ensure perfect competition:

  * Homogeneous product – Are considered to be homogenous when they are perfect substitutes and buyers perceive no actual or real differences...