5. Homogeneous product.

A homogeneous product is a product such that each firm's output is indistinguishable from any other firm's output.

This means that advertising does not exist in a purely competitive market. Why would one firm want to advertise the advantages of its product if it is perfectly substitutable for the product of competitors? That is, those who buy the product cannot distinguish between what one seller and another sells. So, in the buyer's mind, the product is identical. The buyer has no reason to prefer one seller to another.

A perfectly competitive industry has many firms selling an identical product. How many is many? So many that no one firm can influence price. What is identical? A product that is identical in the minds of buyers so that they have no reason to prefer one seller to another.

Corn bought by the bushel is relatively homogeneous. One kernel is indistinguishable from every other kernel. On the other hand, you can buy 30 different brands of many goods—soft drinks, for instance: Pepsi, Coke, 7-Up, and so on. Each is slightly different from the other and thus not homogeneous.

6. Instantaneous exit and entry.

There are no barriers to entry or exit in a purely competitive market. Features of economic life such as control of an essential raw material by one or a few firms or government regulation of firms' behavior in the market do not exist under pure competition.

Firms must be free to move wherever there's an opportunity for profits. Land, labor, and capital will move where they can secure the highest possible return. An entrepreneur will give up his or her business and work for someone else if the wage offered is higher than the firm's profit.

Licenses, long-term contracts, government franchises, patents, and control over vital resources are some of these barriers. Under perfect competition, there would be perfect mobility, and none of these barriers could exist. As in an open game of poker, anyone with a sufficient stake is welcome to play. In fact, hundreds of firms are entering or leaving each year. There are no significant barriers to entry, with the possible exception of money.

Say all the grocery stores in your neighborhood raised their prices by 30 percent without their costs having gone up. What would happen in the next week or month? Probably nothing other than customers getting mad. You'd still shop there until a new store opened in a convenient place with more reasonable prices. In a perfectly competitive market, the new store would open immediately upon hearing that the prices in the existing stores had gone up. It wouldn't wait a week, or even an hour.

7. Complete information.

In a perfectly competitive market, not only would the store open up immediately; you'd also know about it instantaneously. So would other firms. Similarly, if any firm experienced a technological breakthrough, all firms would know about it and would be able to use the same technology instantaneously.

A perfectly competitive market also offers perfect information to buyers and sellers. Everybody in the market has equal, free access to information about the location and price of the product.

Perfect information: A condition in which information about prices and products is free to market participants; combined with conditions for pure perfect competition, perfect information leads to perfect competition.

Agriculture, particularly wheat growing, has been held up as an example of perfect or near-perfect competition. The rise of the giant corporate farm has made this example somewhat obsolete, but we haven't been able to come up with any other examples of perfect competition.