Market is generally understood to means particular place of locality where goods are bought and sold. However in any particular place or locality does not mean market where goods are bought and sold. The buyers and sellers need not assemble at a particular locality for the buying and selling. The goods can be bought and sold without the direct contact between the buyers and sellers.
Now a day the contact can be made through wireless and cables. In Economics market refers to the market for a commodity. Thus the essential features of a market are (a) a commodity which is bought and sold (b) existence of buyers and sellers, (c) a place (d) The contact between buyers and sellers.
According to John. F.Dve “market as a group of buyers and sellers in sufficiently close contact with one another, that exchange takes place among them”. Market consists of different forms like perfect competition, imperfect competitions, etc. Below are given some of the important characteristic features of a perfectly competitive market.
Perfect competition, is said to prevail when the following conditions are found in the market.
(1) Large number of buyers and sellers:
Under perfectly competitive market there is large number of buyers and sellers. The position of a single seller in the market is just like a drop in the ocean. Each buyer purchases only a small quantity of the total amount. Each buyer and seller has no ability to influence the ruling price by their independent action.
The price under perfect competition is given and each seller adjusts its sale to earn maximum profits. Under perfect competition the sellers of a commodity is the price taker and output adjuster and not price makers. They take the market price as a given datum.
(2) Homogeneous Products:
The second condition of perfect competition is that the products sold by the suppliers are fully homogeneous. The commodities available everywhere are the same. The products of various sellers are indistinguishable from each other. They are perfect substitutes for one another.
The cross elasticity between the products is infinite. The commodities are perfectly similar in quality, quantity, size and shape. The buyers are indifferent to any commodity sold in the market. If the commodities sold in the market were differentiated, each seller would influence over the price of his own variety.
The control over price is removed only when all the sellers are producing homogenous products. Thus in a perfectly competitive market, buyers have no other basis of attaching to one seller for purchasing a product other than price.
(3) Uniform price:
Under perfect competition the ruling market price is the same. Price is uniform as the products in the market are identical. Price is fixed by all the buyers and sellers in the market. No Individual effort of a buyer or seller goes to determine price.
If any miller sells at the price less than prevailing price, the demand for his commodity will be so high that he will not be able to supply the commodities at low price to the increased demand. On the other hand if a seller sells at a price higher than the ruling market mice, he will lose by doing so as most of his customers will leave him for his higher price.
(4) Tree entry and free exit:
Under perfect competition buyers and sellers are absolutely free to enter and leave the market. No restriction is imposed on their entry and exit. Under perfect competition firms get only normal profit. At this normal profit there is no tendency on the part of the existing firms to leave the market or the new firms to leave market.
But at abnormal profit and abnormal loss, firms tend to enter and leave the market according” to their will. Thus on the basis of profit and loss firms are at liberty to enter or quit the market.
(5) Perfect knowledge about the market:
One of the most pre-requisite of perfect competition is that both buyers’ and-sellers must have perfect knowledge about the conditions of the market. Sellers must know the ruling market price charged by other sellers from the buyers. Similarly buyers It in know the prices charged by different sellers.
This condition is highly essential for a competitive market. Single price and homogeneous commodity can not prevail if the buyers remain ignorant of the market. When all the buyers can know the price fend the uniform quality of the commodity, nobody will offer more fend therefore single price prevails in the “market,
(6) Perfect mobility:
Under perfect competition it is understood that various factors of production are perfectly mobile within the industry. Factors of production can freely move from one occupation to another and from one place to another. There is no barrier on their movement. Factors move from place to place in search of higher wage. There should not be any kind of imposition on the mobility of resources.
(7) Absence of transport cost:
In a perfectly competitive market there is single unit price. Price being charged by the firms is free of transportation cost. Price is not affected by the cost of transportation of goods. The market price charged by different sellers does not differ due to location of different sellers in the market.
No seller is near or distant to any buyers. Thus there is no transportation cost from one part of the market to the other. Perfectly competitive market is a myth. Such a market is never found in the real world. It is an ideal. As an ideal market it compares the price and profit condition in imperfect market.