EXPLORING THE PRACTICALITY

PERFECT COMPETITION

Sujay S Phatak | Shaifali Mittal

MA [Econ] II Semester
SOE, DAVV, Indore

Exploring The Practicality Perfect Competition

Introduction
Perfect Competition, considered hypothetical in nature, is a type of market structure where
large number of buyers and sellers are present to trade a homogenous type of product at
a fixed price with highly elastic price elasticity of demand. Entry and exit of firms is free in
such market type. Also, no seller can control the prices prevailing in the market as they are
solely determined by the industrys demand-supply equilibrium. This is because the
maximum output which an individual firm can produce is very small relative to the total
demand for the industry product so that a firm cannot affect its price by varying its supply
of output and, with many firms and homogenous product, no individual firm is in a
position to influence the price of the product. The buyers and sellers are fully aware of the
ruling price in the market. This is another reason why price differentiation is not observed
in perfect market because only when all buyers are aware of the current prices, the firm
charging a higher price will lose its customers. To find whether such market exists in
practical life, a study of sugarcane juice vendors of the AB Road (near IPS Academy), Indore
[MP] (hereafter referred as AB Road market) has been conducted and this paper contains
the details of the study. This business is seasonal in nature and the period of operation is
nearly 3-4 months.

Objectives
1. To find a relation between classroom theory and practical life.
2. To explore the existence of Prefect Competition Market Structure in unorganized
sector of sugarcane juice market.

Methodology
A field survey was conducted in the AB Road market with sample size of 10 (out of 30
vendors). The data used in this paper is primary in nature and is collected from various
sugarcane juice vendors of the AB Road market.

Exploring The Practicality Perfect Competition

The Study
Table 1 Details of the Data Collected

Sr. Quantity
No.
(per day)

Price

Total Revenue

Total Cost

(per glass)
glass)

(per day)

(per day)

Capital
Invested

Profit

Average Cost

(per day)

(per glass)

150

10

1500

1225

50000

275

8.167

150

10

1500

900

50000

600

160

10

1600

990

45000

610

6.187

350

10

3500

1517

40000

1983

4.333

70

10

700

525

Nil

175

7.5

150

10

1500

1050

30000

450

150

10

1500

1250

33000

250

8.333

200

10

2000

1400

35000

600

250

10

2500

1350

37000

1150

5.4

10

175

10

1750

1120

30000

630

6.4

Source: Sugarcane Vendors of AB Road market

Quantity: Number of Glasses Sold (per day);

If we see third column of Table 1, price offered by all the vendors is same, i.e. INR 10. This
is one of the characteristics of Perfect Market Structure. Assuming that AB Road market is a
perfect market (as price is same), the average revenue (AR) curve and the marginal revenue
(MR) curve will be similar to the price (P) curve in its graphical representation. As the
demand is perfectly elastic, prices are not in control of the vendors and P=AR=MR,
therefore, once the price is established (INR 10 in this case), any firm will accept it and try
to maximize profit by altering its output. The similar concept can be understood after
analyzing Table 1. Vendor number 4 has the highest profit (INR 1983) with maximum
number of glasses sold per day (350). Due to his increased output, his cost also gets reduced
(INR 4.333, which is lowest in the market), which helps him to maximize his profits (with
almost 56.67% margin!).

Exploring The Practicality Perfect Competition

The Analysis
This analysis tries to link the data collected with theoretical aspects of the classroom study.

The first condition of perfect competition is existence of large number of firms in

the industry. Vendors prevailing in AB Road market are around 30. This is quite
large considering the fact that 30 stalls are present in a straight line road of around
1 km.

The second condition is that the product should be homogeneous in nature.
Sugarcane juice (product of study) prepared by all the vendors has same ingredients.
These are

Sugarcane,

Mint Leaves,

Lemon Juice, and

Ginger.

The condition of free entry and exit is also present in the AB Road market. No
license or permission is needed by any authority nor any tax, fee, or any other kind
of payment is to be made in order to start a stall in the market. Any person can
freely enter and exit this market.

Each vendor offers about 300 ml of juice at the rate of 10 INR. This price is
predetermined and cannot be altered by any individual vendor. When asked if and
why the alteration is not possible, some say they cannot afford a lower price, some
of them do not want to create problems for those poor people who cannot afford
such price, and all of them agree that if the price is to be increased by any amount,
their sale would decline.

Another condition of a perfect market is perfect information about the prevailing
price to both, the buyers and the sellers. All the sellers gave positive response to this
question. All of them knew about the price prevailing in the market.

Conclusion
This study was conducted to explore the existence of a perfect market in practical life. After
deep analysis of sugarcane vendors of the AB Road Market, this paper concludes that
classroom theory is applicable in practical life an also, a perfect competition market
structure is observed in unorganized sector of sugarcane juice market. All the characteristics
of perfect market structure were observed in the AB Road market, which are explained in
the prior segments of this paper. Thus, both the objectives were successfully fulfilled and
justified using primary data as source of the study.