Perfect Competition

Perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.

Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant influences the price of the product it buys or sells. Specific characteristics may include:

1. Infinite buyers and sellers – Infinite consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.   

2. Zero entry and exit barriers – It is relatively easy for a business to enter or exit in a perfectly competitive market.        

3. Perfect factor mobility - In the long run factors of production are perfectly mobile allowing free long term adjustments to changing market conditions.         Perfect information - Prices and quality of products are assumed to be known to all consumers and producers.        

4. Zero transaction costs - Buyers and sellers incur no costs in making an exchange (perfect mobility).        

5. Profit maximization - Firms aim to sell where marginal costs meet marginal revenue, where they generate the most profit.        

6. Homogeneous products – The characteristics of any given market good or service do not vary across suppliers.        

7. Non-increasing returns to scale - Non-increasing returns to scale ensure that there are sufficient firms in the industry.

http://en.wikipedia.org/wiki/Perfect_competition