Perfect Competition

10Jun06

Perfect competition requires five things according to answers.com:

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.

Granted, it’s not really fair to compare any real market to a fictitious one, but it’s worth noting that this is the basic idea of economics. When many free market thinkers and various pundits are referencing competition, this is what they mean. They understand it’s not attainable, but they believe any step in this direction is a good thing. While we’re on the topic, the benefits of perfect competition are quite impressive; low prices, high quality, basically everything a consumer could want. That’s why those thinkers reference competition this way. They want it to feel good whenever it’s mentioned.

Perfect competition is good, don’t get me wrong. I think competition is almost always a good thing as well. However, in the context of this debate, there has been some talk of already having enough competition in the field (or at least presumptions thereof) to ensure that consumers rights and priviliges will be protected by market forces. I think that’s far from accurate, what with the somewhat less than infinite broadband ISP’s out there.

More soon.

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