A completely competitive market, also known as a purely competitive market or a freely competitive market, refers to a large number of production and sales enterprises in an industry. They all provide the same, standardized products (such as grain, cotton, and other agricultural products) to the market in the same way market. Neither the seller nor the buyer can control the price of the goods or services. In this competitive environment, because both the buyer and the seller have no influence on the price, they can only be the receiver of the price. Any price increase or price reduction by the enterprise will cause a sudden reduction in the demand for the company's products or an unnecessary loss of profits. Therefore, product prices can only be determined by the relationship between supply and demand. [1]
perfect competitive market
There are a large number of buyers and sellers
Due to the existence of a large number of producers and consumers, compared with the entire market's production (sales) and purchases, the proportion of production (sales) and purchases by any one producer Are small. Therefore, no producer or consumer has the ability to influence market output and prices. Any individual market behavior of producers and consumers will not cause changes in market output (ie sales volume) and prices. To put it another way: Any buyer faces
Market type division and characteristics
Market type
Number of manufacturers
Product Difference
Degree of control over price
Ease of entering and exiting a market
Which market is approached
Perfect competition
a lot of
Absolutely no difference
No
Very easy
Some agricultural products
Monopolistic Competition
a lot of
have difference
There are some
Easier
Some light industries, retail
Oligarchy
several
With or without difference
Considerable
more difficult
Steel, automotive, petroleum, telecommunications
monopoly
only
Only product and no substitute
To a large extent, but often regulated
Difficult, almost impossible
Utilities [4]
Promote the efficiency of microeconomic operations
A perfectly competitive market completely excludes any
(1) A perfectly competitive market is difficult to establish under the premise of real life. Therefore, the efficiency of a perfectly competitive market will only appear if there are strict prerequisites. In real economic practice, it is difficult to fully meet all the prerequisites of a completely competitive market. Therefore, in practice, a completely competitive market is difficult to appear in actual economic practice. Perfectly competitive markets are just a theoretical assumption made by western economists in the process of studying market economic theory, and they are a means and method for economic analysis. In this way, the lack of practical significance has become the most fundamental defect of a completely competitive market. Under the condition of this fundamental defect, the perfectly competitive market also has many other specific defects corresponding to the prerequisites.
(2) The existence of a large number of small businesses necessary for a perfectly competitive market is neither possible nor applicable. In real economic practice, even if entering the market is very free, due to the restrictions and influences of other conditions, it is impossible for enterprises to enter the market infinitely. Even if there are a large number of companies in the market, these companies can only be small businesses. With a large number of small businesses, commodity prices in the market may be relatively high. Because, for one thing, the production scale of small enterprises is small and cannot be produced on a large scale. There are diseconomies of scale and high production costs. As a result, the prices of products produced by small businesses are high. Secondly, the small-scale production cost of small enterprises has a small potential for decline. This is because small enterprises are unable to introduce advanced production technology and equipment, and it is difficult to improve production efficiency, so that it is difficult to reduce the production costs of their products. Even if advanced production technology and equipment can be introduced, large-scale production cannot be achieved. At this time, the production cost will not only fall but will also rise.
(3) A perfectly competitive market will also cause waste of resources. Under the conditions of a completely competitive market, free entry keeps flooding the market with more efficient companies and products that are more suitable for consumer needs, while those with low efficiency and products that can no longer meet consumer needs are constantly being eliminated from the market. Under the impact of progress and external interference, small businesses can easily fail in competition and become a normal and frequent phenomenon under perfectly competitive market conditions. For those enterprises that have withdrawn from the market due to failure in the competition, the equipment and labor of the entire enterprise are forced to stop using while still functioning. In this way, precious material resources and labor resources must be wasted.
(4) The assumption of complete knowledge in a perfectly competitive market is unrealistic. In general, both producers and consumers can only have incomplete knowledge. It is impossible for a producer to have complete knowledge of his position in the real market, the development trend of the future, and various factors affecting the market. Activities can only be performed frequently in an uncertain world. It is impossible for consumers to fully grasp the price and quality of all products in a particular market. At the same time, market information is unlikely to be unobstructed and very accurate. Therefore, it is impossible for market participants to have complete, comprehensive and accurate market information and market knowledge. Complete market knowledge can only be an unrealistic theoretical assumption.
Only a few industries, such as agricultural production, are closer to a perfectly competitive market, because in agricultural production there are a large number of farmers and the production scale of each farmer is generally small. At the same time, the output of agricultural products produced by each farmer and its total output The proportion of these products is extremely small. Therefore, the production and sales behavior of each farmer cannot influence the market price of agricultural products, and can only accept the market prices of agricultural products.
If some farmers want to increase the selling price of their agricultural products, the market price of agricultural products will not increase as a result, and the only result is that their own products cannot be sold. If the farmer wants to lower the selling price of his own agricultural products, the market price of the agricultural products will not fall because of this, although the farmer's agricultural products can be sold faster and cheaper than the market price. However, it is inevitable to suffer great economic losses. In this way, the behavior of farmers to reduce the price of their agricultural products becomes meaningless. [7]
