Perfect competition describes a market in which no buyer or seller has more market power than the other. Perfectly competitive markets are usually allocative and display productivity efficiency. A market that can be described as a perfectly competitive market is such a market that is characterized by the fact that no one business enterprise has an influence on the price of the commodities it has put in the market. Some of the conditions for perfectly competitive markets are that: there must be many firms that compete for the consumers to purchase their goods and services. This is because only one firm in a market does not, by definition, apply to the competition.
There must also be homogeneity of products. In that, firms can only be said to be competing if and only if they offer the same products to the same region of customers. The products that the firms may deal in must be such that in the absence of one, the other can do. That is to say that they must be substitute goods.
The market should also be such that the entrant of a new firm into the market is easy. This is called the low-entry barrier. When the entry to a market by a firm is easy there will be many competitors who choose the combinations of factors of production that they can best produce in. This then can alter the influence of any firm on its pricing.
Finally, the producer and the consumer must be sufficiently informed on the nature and the availability of products offered by various firms in such a market. This will dilute the effect that a single player may have on the pricing of the commodity in that the information will give the consumer an array of choices to pursue in acquiring the products.
Some factors that may lead to imperfect competition in the market include biased incentives given to some firms while denied to others. Government control in the pricing of certain commodities among others.