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Zhi Finance » What are the defects of a perfectly competitive market?

What are the defects of a perfectly competitive market?

A perfectly competitive market is also a form of market with many defects, and its main defects are manifested in the following aspects.

  1. perfectly competitive markets are difficult to establish in the case of real-life preconditions, and thus the efficiency of perfectly competitive markets must also appear only when strict preconditions are in place. In real economic practice, it is difficult to have all the prerequisites for a perfectly competitive market in a comprehensive manner, and therefore, in practice, perfectly competitive markets are difficult to emerge in real economic practice. The perfectly competitive market is only a theoretical assumption of Western economists in the process of studying the theory of market economy, and is a means and method for them to carry out economic sub-folding. In this way, the absence of practical significance becomes the most fundamental defect of the perfectly competitive market form. Under the condition of this fundamental defect, the perfectly competitive market has many other specific defects corresponding to the preconditions.
  2. The condition of the existence of a large number of small enterprises necessary for a perfectly competitive market is neither possible nor applicable. In real economic practice, even if access to the market is very free, due to other aspects of the constraints and influence, access to the market can not be infinite number of enterprises. Even if there are a large number of enterprises in the market, they can only be small enterprises. In the case of a large number of small enterprises, the price of goods in the market is likely to be relatively high. Because, first, the production scale of small enterprises is small, can not be large-scale production, there is no economy of scale, high production costs, and therefore the price of products produced by small enterprises is high; second, the production costs of small enterprises have little potential for decline, because small enterprises can not afford to introduce advanced production technology and equipment, the efficiency of production is difficult to have a large increase, so that the production costs of its products is difficult to reduce. Even if they can introduce advanced production technology and equipment, they can not reach the scale of production, and then their production costs not only can not fall but also rise.
  3. Perfectly competitive market will also cause the waste of resources. In the perfectly competitive market conditions, free entry to make more efficient, more suitable for the needs of consumers of the products of enterprises continue to flood the market, while those with low efficiency, products have been unable to adapt to the needs of consumers of enterprises and constantly eliminated from the market. Small enterprises are prone to failure in competition under the impact of progress and external interference, becoming a normal and frequent phenomenon under perfectly competitive market conditions. Those enterprises that fail in the competition and exit the market, their entire enterprise equipment and labor force are forced to stop using in the case that they can still function, which cannot help but cause the waste of valuable material resources and labor resources.
  4. The assumption of complete knowledge in a perfectly competitive market is unrealistic. In general, both producers and consumers can only have incomplete knowledge. Producers cannot have complete knowledge of their position in the real market, future development trends and information on various factors affecting the market. They can only operate in a world of uncertainty on a regular basis. Consumers, it is impossible to fully grasp the price, quality and other aspects of all products in a given market. At the same time, market information cannot be unobstructed and very accurate. Therefore, no market participant can have complete, comprehensive and accurate market information and market knowledge, and complete market knowledge can only be an unrealistic theoretical assumption.

Generally speaking, in real economic life, only a very few industries such as agricultural production are close to perfectly competitive markets. Because the number of farmers in agricultural production is large and the scale of production of each farmer is generally small, and the output of agricultural products produced by each farmer and its proportion in the total output of agricultural products are extremely small, therefore, the production and sales behavior of each farmer cannot influence the market price of agricultural products, and can only accept the market price of agricultural products. If some farmers want to increase the selling price of their agricultural products, the market price of agricultural products will not be increased as a result, and the result will be that their products cannot be sold. If a farmer wants to lower the selling price of his agricultural products, the market price of agricultural products will not be reduced, although the farmer’s agricultural products can be sold at a lower price than the market price, but, inevitably, they will suffer economic losses. In this way, the farmer’s behavior of reducing the price of his agricultural products becomes meaningless.

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