Perfect competition

Perfect competition
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Perfect competition
A perfect competitive industry is one where neither producers nor consumers have influence over the price levels. No participants are large enough to gain market power to set the prices. Both producers and consumers are price takers.
The New Zealand dairy farming industry is an example of a perfect competitive market. Many buyers and sellers participate in this industry and none is large enough to dominate the market and influence the price levels. Fewer barriers for entry and exit into the market exist and dairy farmers sell homogenous products. Market information is also freely available which facilitates perfect competition. Perfect competition has its own advantages and disadvantages to both producers and consumers as well. There are insufficient profits for producers: producers cannot fix prices to levels that will see them earn supernormal profits. Lack of competition over product design and specifications also gives producers no incentives for product innovations. This form of a market lacks product varieties which is a disadvantage to consumers. Perfect competition causes so many externalities which affects both producers and consumers CITATION She00 \l 1033 (Hunt, 2000). In theory, perfect competition is regarded as the most ideal market structure. This is influenced by the fact that it s...