Describe the impact of various forms of competition on business operations with emphasis on perfect competition.

Firms can compete for the same product at identical prices in a market that is perfect. There are no entry and exit barriers. The competition encourages businesses to innovate, optimize and stay competitive. This can make a huge impact on their business operations. Companies that are not under pressure can become less productive and complacent over time. They may also lose their motivation to improve.

Perfect competition also encourages price transparency as sellers must be aware of their competitors’ prices in order to remain competitive. A company that sets prices higher than the rest of its market will result in a loss of sales. Companies can keep their prices competitive by setting up internal cost controls, and focusing on efficiency. This will allow them to earn large profits that are sufficient to support operations.

Perfect competition also offers the opportunity to start-ups that can disrupt markets through innovative ideas and technologies. There is great potential to win market share if a new company can provide better service or lower prices that established competitors. That could be a long-term problem for existing players, who may not be able or willing enough to adjust quickly.