Perfect competition is characterized by multiple buyers and sellers, and includes many products that are similar in nature; as a result, they have many substitutes. Perfect competition has few barriers for entry and prices are determined by supply and demand. Perfect competition has five elements: All businesses sell an identical product, all companies are price takers, all businesses have small market shares, buyers know the nature of the product being sold and know how much each competitor charges for the same product, and the market is also known for freedom of entry and exit [ (Perfect Competition, nd) ].
Personal computers meet all of the five elements of competition: Personal computers are considered perfect competition because you have many companies selling the same product such as Dell, Compaq, and HP. These companies are considered price takers because these companies’ prices do not affect the market. If prices are too high, consumers will buy from a competitor so these companies are forced to go with the current market price of computers if they want to sell their product. All of the companies in these particular markets have small market shares simply because of many substitutes available. Consumers in the computer market are very familiar with the main product specifications such as memory, hard drive space, interface, and cost. Finally computers are an ideal example of perfect competition because there are no barriers for entry and exit. There are new companies entering the market frequently such as eMachines and Asus who are doing very well simply because the products are essentially the same.
Perfect Competition. (nd). Retrieved June 7, 2011, from tutor2u: