How a competitive market operates and how it moves towards equilibriumCompetition is a term that has a wide range of meanings depending on the field to which it is being referred. In the field of economics, competition is expressed in terms entrepreneurial rivalry and that is why the perfect type of competition is never considered competitive behaviour. This is because of the fact that the state of perfect competition leaves the situation of decreased average cost and increased returns. This means that increasing the demand of the products in the market will put some strain in the industries to increase production as far as the out is concerned.
This kind of situation is what led to the researchers to conclude that perfect competition will never be a theory to analyze the increase in scale of returns. Competition refers to the process of dis-equilibrating the processes in the market for the firms to be able to take advantage of the resources in terms of market share and segmentation for the purposes of financial performances (Burns, 1961). The theory of perfect form of competition is said to assume that there is an aspect of full usage of resources meaning that there is no excess hence there is a market force that does not interferer with the market as far a the sellers and the buyers are concerned.
This is unlike the imperfect competition, which is known to interfere greatly with the mechanisms of market by causing destabilization. This kind of competition is found in the monopolies and the oligopolies form of businesses, which generate excessive capacities. The theory of perfect competition is actually based on the symmetry or balance existing between the forces of supply and demand.
This is whereby the prices in the market are smoothly driven together to an extent of being grouped together (Finlay, 2000). The presentation of the demand and the supply curve in the perfect competition will be a curve that is made up of some intersecting curves. The perfect competition was also by a researcher called Harrod having homogeneity or rather some organized exchange as far as the products in the market are concerned. The demand too is very elastic in an infinite manner due to the great organization in the market of the products hence the production cost marginal looks exactly like the prices.
The other aspect that was discovered was the issue of pure competition. This is characterized by perfect elastic demand of the output. The perfect competition and the pure competition slightly differ in the sense that the perfect form of competition is much deeper in that it has more conditions like the factors of mobility; there is no uncertainty and finally fluidity. In the aspects of economics, the perfect form of competition is associated with rational behaviours of the sellers and the buyers, full knowledge, absence of friction, perfect mobility, static conditions and the production factors are perfectly divisible (Mintzberg, 1979).
The above characteristic therefore expresses perfect competition as being the kind of a situation that puts a demand on the outputs of a seller in a perfect elasticity.