Competition

Competition is in economics "the act or process of competing or rivalry; the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms.

Perfect competition
Under perfect competition, firms are assumed to operate in a market characterized by a homogeneous product, an infinite number of buyers and sellers, the absence of any barriers to entry, and with access to perfect information.

This "pure and perfect competition" is unlike anything one normally means by the term "competition." Normally, one thinks of competition as denoting a rivalry among producers, in which each producer strives to match or exceed the performance of other producers. This is not what "pure and perfect competition" means. Indeed, the existence of rivalry, of competition as it is normally understood, is incompatible with "pure and perfect competition." Consider the following passage in a widely used economics textbook by Professor Richard Leftwich:

"By way of contrast, intense rivalry may exist between two automobile agencies or between two filling stations in the same city. One seller's actions influence the market of the other; consequently, pure competition does not exist in this case."

F.A. Hayek argues that competition is the more important the more complex or "imperfect" are the objective conditions in which it has to operate. Indeed, far from competition being beneficial only when it is "perfect," the need for competition is nowhere greater than in fields in which the nature of the commodities or services makes it impossible that it ever should create a perfect market in the theoretical sense.