Merits Or Advantages Of Perfect Competition
The main benefits or advantages of perfect competition can be described as follows:
1. Easy Entry And Exit
In perfect competition, business firms or traders can enter the market and start business without any restrictions. They can exit or leave the market at any time without any obstacles. So, there is no entry and exit barriers in this type of market structure.
2. Lower Price
In this type of market, price of product or service is fixed by demand and supply mechanism. If any trader charges higher price then customers are free to buy products from another shop. So, consumers can fulfill their requirements at lower price.
3. No Consumer Exploitation
Due to competition, customers can get standardized products at affordable price because sellers cannot influence the market. Therefore, perfect competition discourages consumer exploitation.
4. Less Promotional Cost
As we know that this market structure deals with homogeneous products and price is fixed by the market mechanism, producers do not need to invest huge amount in advertisement, publicity and other promotional activities.
Pros And Cons Of Perfect Competition In Short
5. Optimum Utilization Of Resources
Because of lower price, firms earn less profit. Therefore they try to increase efficiency and minimize wastage by utilizing resources properly which helps to lower the cost of production.
Demerits Or Disadvantages Of Perfect Competition
The main drawbacks or disadvantages of perfect competition can be described as follows:
1. Less Profit
It is very difficult for small traders to sustain in the market because of the lack of incentive and lower profit margin.
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2. Limited Choice
This market deals with identical or homogeneous products and services. Therefore there is a limited choice for customers. Because of the lack of variety, customers have no selection facility.
3. No Economies Of Scale
There are various firms trading similar types of products. So, business firms cannot enjoy the benefit of economies of large scale.
pros:
- It discourages customer exploitation
- It creates active business environment
- There are no restrictions to enter or exit the market
- Customers get high quality products at reasonable price
- Producers focus on maximum utilization of resources to improve efficiency
- It requires less advertising and publicity budget
cons:
- It is difficult for small traders to sustain because of high competition
- It lacks product differentiation
- Firms cannot enjoy the benefit of economies of scale
- In this market, profit margin is very low. So producers cannot make sufficient investment for research and development purpose.
- Customers get limited choice
