Perfect competition

Template:Market structure

Definition

Perfect competition among sellers

Perfect competition among sellers refers to a market structure where:

There is a large number of sellers, and every individual seller is small (in terms of production capacity) relative to the totality of sellers.
The only axis of competition between sellers is price. In other words, a buyer deciding between two sellers would choose the one with lower price. In other words, there is no product differentiation.

Perfect competition among buyers

Perfect competition among buyers refers to a market structure where:

There is a large number of buyers, and every individual buyer is small (in terms of the maximum the buyer can buy) relative to the totality of buyers.
Sellers are agnostic between buyers, i.e., given a choice between two different buyers, the one who offers the higher price is more attractive to the seller. Note that this is the analogous condition to the absence of product differentiation between sellers; however, it cannot be labeled product differentiation as the buyer does not create the product.

Perfect competition among both buyers and sellers

Perfect competition among both buyers and sellers refers to a situation where there is perfect competition among buyers and perfect competition among sellers.