5 Examples of Perfect Competition
                     5 Examples of Perfect 
Competition
Competition in the market is a natural 
consequence when two or more businesses 
operate in a particular segment. Each business 
implements strategies, such as reducing prices 
of their products or giving additional products 
on each purchase to allure more customers, 
which helps a company expand. While profits 
gained by a single enterprise are great for that 
company, they can be significantly problematic 
to the competitors. Moreover, it can also result 
in a company gaining control over the market, 
creating a monopoly. For these reasons, a 
theoretical market structure was introduced 
known as the perfect competition.
What is Perfect Competition?
A majority of the time, the word ‘perfect’ does not always translate to the perfect condition of a 
system; however, in economics, it does. Perfect competition is a theoretical economic situation that 
arises when a market is shared equally among many competitors; however, each company sells an 
identical product. Moreover, the market share of each company in a specific market segment is 
equal as well, therefore, it does not influence the price of competitors, meaning there is no 
monopoly. In addition to these characteristics, customers have complete information about the 
product. Lastly, firms are free to enter or exit the market at any time. Interestingly, the idea of 
perfect competition originated in the late 19th century by Marie-Esprit-Léon Walras, a French 
mathematical economist. Following this, Kenneth Arrow, an American economist, and Gérard 
Debreu, a French economist, formalized it in the 1950s. Despite it seeming like the ideal market 
structure, there are certain drawbacks of perfect competition. Firstly, it hinders innovation, as each 
company is selling their product at an identical price and customers are barely able to distinguish 
between brands, opting to innovate will only result in exhaustion of resources without profits. 
Secondly, with equal profit shares, companies cannot grow their business beyond a certain point.
Examples of Perfect Competition
1. Crop Industry
While the prices of crops fluctuate significantly based on the yield of the crop in 
developing countries, it remains constant throughout the board in developed 
nations, as they have resources to grow the same amount of crop each year. Take 
the United States, for example, the price of wheat set by each company is 
identical, meaning consumers can quickly switch between different brands. 
Additionally, farmers are paid the same price for the crop, making it easier to enter 
the market.
2. Dairy Industry
Similar to crops, dairy is another industry that has similar prices for products 
throughout the range. Interestingly, local dairy farmers that sell directly to the 
customer can fluctuate the price of their products based on the output; however, 
the companies that produce dairy products offer nearly the same price annually. 
Additionally, consumers are unable to distinguish among brands in this category, 
as milk, for example, is bought solely because of the requirement, therefore, 
consumers purchase whatever brand is available at a given time. Besides, 
supermarkets actively change dairy farmers. While the product is different, 
consumers are unbothered by it.

3. Supermarkets
Although it may seem like each supermarket is different from another with sales 
and different offers, ultimately, their primary business is to sell various products 
under one roof. The products stocked by supermarkets are produced by different 
companies, meaning each supermarket is selling the same product at a similar 
price, excluding the sales. Another aspect that makes supermarkets a perfect 
competition is their offering of non-branded products, which again are sold at 
nearly a similar price.
4. Foreign Exchange
Foreign exchange is a great example of perfect competition because a single 
entity cannot control the market, and each person is offering the same product. 
Granted, the value of currencies fluctuates even on a minute basis, but this 
fluctuation is the same for each individual. Moreover, entering and existing foreign 
exchange is easy as well.
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