Sin título

PERFECT COMPETITION

It corresponds to a market situation limit in which no company and no consumer have enough power to influence the price or quantity.transaccionada.

​​​​​​In a situation of perfect competition, each company acts individually, without the need to take into account the decisions of the other, only limited to observe.el precio en el mercado y decidir que cantidad quiere vender a ese precio.

Conditions:

Existence of a large number of companies to produce the same product or service (good), with similar size and cost structure and equal access to information, technology and production factors.

Existence of a large number of consumers and all with the same information available from the offer in the market.

The homogeneity of the existence of the products or services offered in the market.

The lack of barriers to entry or exit of companies in the market.

Without the intervention of the State in the market, allowing the laws of supply and demand to work freely.

Consecuencuences

Each one of the competitors faces a horizontal demand curve, that is, perfectly elastic, and therefore there is no incentive to practice a price different from the market price.

If a company individually makes a price higher than the market price, it will immediately lose the demand addressed to it, because the products and services are perfectly homogeneous and consumers have perfect information about the existing offer.

f the company decides to practice a price lower than the market price, it does not stand for long because, in a situation of perfect competition, the market price corresponds to an economic benefit to zero, which, at a lower price, results in an accumulation of unsustainable losses in the long term.

Benefits

If there are abnormal benefits, that is, profits are above zero, they attract new companies (since there are no barriers to entry) leading to an increase in supply and, therefore, a reduction in the market price and the restoration of economic benefit to zero.

If the economic benefit is less than zero, companies must start to leave (since there are no barriers to exit), resulting in a reduction in supply and, therefore, an increase in market prices, again substituting the benefiteconómico a cero.