Perfect Competition
A market structure in which the following five criteria are met:
1. All firms sell an identical product.
2. All firms are price-takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the prices
charged by each firm.
5. The industry is characterized by freedom of entry and exit.
Sometimes referred to as "pure competition".
Investopedia Commentary
Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry.
Related Links
Economics Basics Tutorial
Setting vs. Getting: What Is a Price-Taker?
Antitrust Defined
See also: Dog Eat Dog, Economics, Herfindahl-Hirschman Index - HHI, Monopoly, Oligopoly, Price-Taker
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