The disadvantages of perfect competition are no scope for economies of scale, lack of product differentiation, reduced research and development expenditures, reduced incentive to develop new technology and the potential for market failure. Perfect competition is largely a theoretical concept.Know More
Perfect competition is an economic market structure characterized by numerous small firms that have no individual control over price, no barriers to entry or exit, perfect information among market participants and the absence of product differentiation. Markets for agricultural products and commodities are the closest real world examples of perfect competition.
Because a perfectly competitive market is comprised of numerous small firms, economies of scale that benefit larger firms are nonexistent. A firm that grew much larger than its competitors would incur fixed costs that would make it financially unfeasible. Perfectly competitive markets also result in dull, homogeneous products because a seller has no incentive to differentiate his product, as everyone is selling the same thing: rice is rice, and iron is iron. Homogeneity reduces the incentive to invest in research and development, as a firm is unwilling to invest resources in activities that, because of perfect knowledge, will benefit the entire industry. Finally, absent government intervention, perfectly competitive markets are prone to market failure when impacted by externalities such as bad weather or supply shocks.Learn more about Business Resources
Perfect competition is characterized by factors like multiple sellers (or competitors), identical products on the market, sellers accepting rather than influencing market prices and free entry and exit into the given industry. In the actual business world, perfect competition is extremely rare, but it is an important economic concept.Full Answer >
According to Investopedia, perfect competition rarely exists because most industries almost never follow the five requirements of perfect competition. These requirements are that all of the firms make identical products; have small market shares; are price-takers; open information to consumers; and offer freedom of entry and exit.Full Answer >
Unethical and ethical business practices can both make money legally, but while ethical business can be more difficult to conduct it also builds longer-lasting customer relationships and constructs recognized and respected brands. Unethical business is not bound by consideration for customer well-being and can thus profit without scruple.Full Answer >
Competition can promote market growth and lead to better products supplied to the consumer market, but it can also lead to an exhausting workload and immense financial strain for the companies invested in competing, which can cause further problems. The issue is a complex one that encompasses capitalist economics and influences, based on the performance of the marketplace and other market forces.Full Answer >