9 Reasons For Perfect Competition Does Not Exist in the Real World

Perfect competition is one of the market structures and it has an important place in the theory of pricing. But it is an imaginary market structure that is not found in real practice. It presents an ideal picture of market conditions but in real life such a market is absent. 

why perfect competition does not exist
why perfect competition does not exist

Perfect competition is only a virtual market imagination.

Why Perfect Competition Does Not Exist?

Perfect competition is an imaginary and unrealistic market structure in the real world and it is called a myth because of the following reasons:

1. Lack of a Large number of Buyers and Sellers

In some markets, there is a large number of sellers and few buyers while in other markets a large number of buyers and a small number of sellers and they are in a position to influence the price.

2. Restrictions on Entry and Exit of Firms

Perfect competition assumes that there is freedom of entry and exit of firms in the industry.

But in actual practice, we see that government intervention in the form of licensing policy, etc.

And the establishment cost of firms is such limitations that restrictions are in existence.

3. Existence of Artificial Restrictions

As we know that in the marketing of goods buyers and sellers indulge in various tactics and use various types of artificial restrictions.

Government policy influences the sales and purchase of goods in the form of licensing policy, rationing policy, etc.

Thus, Pressure from trade unions and producer’s federations are some of the restrictions in any type of market structure are found.

4. Lack of Homogenous Product

Perfect competition assumes that the products are identical but in actual practice, we do find differentiated products.

Various brands of products are available in the market, for example, coffee, soap, edible oil, soap, TV, and watches are having different brands.

Hence, this assumption of perfect competition is a myth.

5. No Perfect Knowledge of Market Condition

In perfect competition, there is perfect knowledge on the part of all buyers and sellers about market conditions.

But we know that many buyers and sellers do not have perfect knowledge and at the same time, they are lazy and careless that they do not bother about the minor difference in the price of a product.

Thus, Some of the firms charge high prices for their product because of their dominance and reputation in the market.

It refutes the characteristic of perfect competition.

6. Absence of Perfect Mobility of Factors of Production

Perfect competition assumes that all the factors of production move from low-paying remunerative industry to highly paid remuneration.

But in actual practice will find that labor, entrepreneurship, and organization or three human factors and are not only affected by economic factors but are also influenced by non-economic factors namely language, religion, caste, distance, environment, etc.

Hence, the perfect mobility of factors of production is also a myth or imaginary market in economics.

7. Presence of Transport Cost

Perfect competition assumes that there is no transport cost because the market area is adjacent.

But in the practice we see that sellers and buyers are scattered and on account of this element the goods and transferred from one place to another then they will be transportation costs.

8. Existence of Non-Price Competition

Perfect competition assumes that at one price commodity is sold and bought in whatever quantity.

But in real practice, we find that a large amount is spent on advertisement and sales promotion (non-price competition) in order to attract more customers and boost our sales.

9. Price Differences

Perfect competition is based on single price consideration.

But it is a myth because different prices are charged by different buyers for the sale due to geographical differences and attachment to different brands of a product, social objectives, and government policy and trade barriers.

Thus, we can say that all the characteristics of perfect competition are ideal and imaginary.

In real practice, the things and market structures are totally different and on account of such a situation and we called the perfect competition a myth and imaginary market condition.

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