Perfect Competition

The principle of perfect competition is a theoretical idea in the economy, which in this form will probably not exist in the longer term.

In order for the condition of perfect competition to be fulfilled, certain conditions must be fulfilled. Both supply and demand are balanced in this market. It is assumed that there are always enough buyers who want to buy the product. At the same time, it is assumed that the supplier does not have to go under his price pain threshold because the demand is permanently high enough.

But what are the prerequisites for full competition and why is this form of competition so remote and therefore just a theoretical model?

Conditions for Perfect Competition

Complete competition requires that no company involved in the market has a market power and that no company has a significant impact on market prices . Moreover, a condition that must be fulfilled is that it must be homogeneous goods. This means that the products of the different suppliers are nearly identical and comparable to the customers. Not many products meet this requirement. An exception could be gasoline, for example. Because the quality of the fuel of a variety is always the same, it does not matter to the customer where he buys the product. The reality, however, is that most of the goods are not homogeneous, since there are, for example, differences in quality.

In addition, there must be a large number of suppliers and buyers in the competition. The consequence of this is that the action of the individual has no influence on the market price. If, for example, there are 1,000 vendors and a million customers, it is irrelevant whether there are only 999 vendors and 998,000 vendors in the next month. The situation would be different if there were only ten suppliers for the number of customers. Then a vendor would more or less have an influence on the market price.

The last condition, which must be fulfilled in perfect competition, is the market transparency , which must be present. This means that every market participant must know which goods are offered and demanded by whom and at what price. A truly theoretical assumption, which in reality is mostly only fulfilled on the stock exchange .

Reality of Perfect Competition

Since one can only speak of a complete competition, if all of the above-mentioned conditions are fulfilled without exception and in full, this model is to be described as very realistic. In reality, it would not be possible. This is much more a theoretical model, an ideal.

Briefly Summarized:

• Perfect competition is a theoretical and realistic ideal


• It is assumed that these are homogeneous, comparable goods (for example gasoline)


• It is assumed that there are a large number of buyers and sellers


• It is assumed that there is a complete market transparency.