Main company or close it if it is

Main conditions for perfect competition:

1. Very similar products;

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2. Unlimited number of sellers and buyers of one type of product;

3. No monopoly;

4. The prices of the products are made by the market, but not by the government;

5. Similar opportunities for all people to start own business from economical point of view;

6. Accessible information in everywhere about prices on the market. Majority of people know about the prices of products;

7. Mobile factors of production, it is easy to open a company or close it if it is unprofitable;

8. Competitors, in general, do not effect on other market players.

 

By the way, there are 5 main points, which can be taken from that list:

1. Many sellers and buyers

2. Uniformity of goods

3. Lack of control over the price

4. Free access to the market

5. General availability of information

 

Let’s consider each of these points in details:

1. The market is full of small sellers and buyers. This fact creates a situation for some products that they have so small price that it is almost equal to the cost price, and companies simply survive;

2. There are homogeneous products on the market. Therefore, when buyer is choosing a seller, he or she looks only on price of goods, but only if sellers provide the products with the same quality;

3. Because of the fact that market is overcrowded and only one type of product is present on it, neither sellers nor consumers can influence on the cost of production;

 

4. There are no barriers for opening the company by average citizen. It is free access to buy materials, register company, rent some place and start work;

5. Most people know the approximate or exact price for a particular product. Since all buyers know the prices of products on the market, they will choose the better offers, which are based on price;

 

 

Advantages of the system:

• Strong market, due to the large number of players on it;

• High level solutions of problems for buyers. Higher competition = higher level of service and product quality;

• Entrepreneurs can independently choose the type of activity. Government does not limit them in it;

• Low and stable market price of goods. Large market players crowd out the small companies from the market making lower prices for products. Big players have fewer production costs, correspondingly lower prices. Buyers are winners.

 

Disadvantages of the concept:

• This market model provides equal opportunities for all firms, but the result depends only on themselves. Success depends not only on satisfying the wishes of the consumer, but also on the competent distribution of finance at the beginning;

• The desire to increase income often leads to worsening the environmental situation and the exhaustion of natural resources;

• A large chance of crowding out small companies from the market because of the low production costs which are put by large players.

 

Examples of perfect competition:

1.       Food industry: potato, kebabs, canned products;

2.       Online stores: electronics, zoo goods, cosmetics;

3.       Printing companies, advertising agencies, small logistics firms.