Perfect competition is a theoretical market where many small firms sell an identical product. No single seller can influence the price. Buyers have full information. Firms can enter and exit freely. The model is a benchmark, not a description of any real market.

In perfect competition, firms are price takers. They sell at the market price or not at all. Profit attracts new entrants, which drives prices down. Losses drive firms out, which pushes prices up. In the long run, firms earn only normal profits.

The model is useful for teaching and for comparison. Agricultural commodities come closest, though even there, subsidies and trade barriers distort things. When economists say a market is "competitive," they usually mean something looser than the textbook ideal.

Assumptions

• Many buyers and sellers
• Identical products
• Perfect information
• Free entry and exit
• No transaction costs