1 Answer | Add Yours
There is one main characteristic of perfect competition that would make it hard for businesses like gas stations and, in particular, restaurants, to ever be in perfect competition.
Perfect competition is characterized by a very large number of small firms competing with one another. This is possible in regard to both gas stations and restaurants. It is also characterized by easy entry to and exit from the market. This, too, is something that gas stations and restaurants could achieve. It is not that hard to open a new restaurant or, to a lesser extent, a new gas station.
The problem with such firms arises when we get to the third requirement, which is that the firms must sell a homogeneous product. It would be essentially impossible for gas stations or restaurants to sell a homogeneous product. The gas that stations sell is essentially homogeneous. However, the locations in which they sell are not. A gas station on a busy street is much more likely to attract customers than one on a side street. With restaurants, the differentiation between products is even greater. Location matters here too. But the type of food and its quality are hard to make homogeneous. So is the atmosphere in the restaurant. It is easy for restaurants to differentiate their products and therefore they cannot achieve perfect competition.
So, for these or any other type of firm to be in perfect competition, there must be many small firms, selling homogeneous products and able to enter and exit the market at will.
We’ve answered 319,663 questions. We can answer yours, too.Ask a question