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Perfect competition
Practical Law ANZ Glossary w-009-0264 (Approx. 2 pages)
Glossary
Perfect competition
A theoretical economic model that states that perfect competition in a market exists when all of the following conditions are met:
- The goods produced by all sellers are homogeneous.
- All buyers and sellers have perfect information about any aspect of the market.
- There are no barriers to entering or exiting the market.
- Each seller's market share is so small in proportion to the total market that one seller’s increase in output will not affect the decisions of other sellers.
In theory, perfect competition occurs in a market where no single seller or buyer can influence the price of the product and the market forces of supply and demand establish the price. However, an absence of market power does not mean the presence of a perfectly competitive market (Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1; [2001] HCA 13). In practice, perfect competition is rarely if ever observed or proved.