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Perfectly Competitive Market: Definition, Characteristics & Examples

Perfectly Competitive Market: Definition, Characteristics & Examples
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  • 0:00 Perfectly Competitive…
  • 0:55 Characteristics
  • 1:49 Some Examples
  • 2:55 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting
In this lesson we'll learn about perfectly competitive markets. We'll define characteristics associated with these types of markets and look at some industries that meet some of the criteria.

Perfectly Competitive Market Defined

Take a minute to imagine that your greatest desire is to own your own business. Because you know that starting your own business is often a daunting task that involves a lot of hard work and struggle, you decide to look for products that are almost sure to sell, therefore, trying to minimize the risk of your business failing. After hours of research, you realize that you must sell a product that has a perfectly competitive market.

So what is a perfectly competitive market exactly? Well, a perfectly competitive market is a market where businesses offer an identical product and where entry and exit in and out of the market is easy because there are no barriers. In the example from earlier, when starting your own business in a perfectly competitive market, you would need to sell a product that is identical to the products that other businesses are selling so that you can enter the market more easily.

Characteristics

Let's look at a list of characteristics that are often found with a perfectly competitive market:

  1. In a perfectly competitive market, there are multiple firms.
  2. Knowledge is available to everyone. Basically, for the new potential business owner from earlier, when entering a perfectly competitive market, all of the information is perfect, with no failure or time lags.
  3. There are no barriers to enter the market. There are also no barriers to exit the market. This means that a firm can enter and exit the market freely.
  4. The products firms produce are identical. This means that every firm is creating the exact same product.
  5. One firm cannot control the market or its conditions. In other words, no firm has the power to influence the market and therefore the price received for products is the result of the whole industry.

Some Examples

Because achieving a perfectly competitive market is very difficult, finding examples proves to be just as tedious. Let's take a minute to look at some markets that come close to meeting the characteristics of a perfectly competitive market:

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