<p><strong>Perfect information</strong> implies every buyer and every seller knows everything in the market. As soon as a firm brings a new product to the market, other firms start selling the same, identical, product. In practice, say a kebab shop comes up with a secret new ingredient and attracts more custoemrs, but as soon as this happens, other shops copy it. Bottomline: any information-advantage is short-lived in perfect competition. This also leads to the other characterisation, <strong>all products are homogeneous</strong>. </p>

<p>If the firms/customers do not possess full information about the market/products, then you should characterise the market differently i.e. oligopoly, monopolistic competition or monopoly.</p>

CC BY-SA 3.0
2018-01-07T23:25:08.827Z
2018-01-07T23:25:08.827Z
london
<blockquote>
  <p>However, why exactly is having full information about product characteristics important for characterizing perfect competition?</p>
</blockquote>

<p>Because in this situation even in extreme case you can be sure, that MC=MB. For example, let's assume that 1 util=1 dollar. There is a pizza with price of 100 dollars and I agree to pay only 100 dollars as maximum (not even 1 cent more), because I expect to derrive 100 utils from its comsumptions. If my estimate of its utility is even slightly off, then I can be worse off by buing it. For example, if it turned out that its consumptions gives me only 99 utils of satisfaction.</p>

CC BY-SA 3.0
2018-01-08T12:19:27.633Z
2018-01-08T12:19:27.633Z
KarmaPeasant
<p>My book states that one factor defining a perfectly competitive market is its participants having full information about prices and product characteristics. I can understand how having perfect information about prices promotes price taking behaviour (you can't charge me a higher price for your product if I know I can buy it cheaper from other producers). However, why exactly is having full information about product characteristics important for characterizing perfect competition? Thanks in advance.</p>

<microeconomics><competition>
Why exactly does a perfectly competitive market depend on consumers having perfect information about a product?
Sasaki
# Why exactly does a perfectly competitive market depend on consumers having perfect information about a product?

(Asked by: username_0 on 2018-01-07)

My book states that one factor defining a perfectly competitive market is its participants having full information about prices and product characteristics. I can understand how having perfect information about prices promotes price taking behaviour (you can't charge me a higher price for your product if I know I can buy it cheaper from other producers). However, why exactly is having full information about product characteristics important for characterizing perfect competition? Thanks in advance.

**Tags:** microeconomics, competition

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## 2 answers

### Answer by username_1 on 2018-01-07. Score: 2

**Perfect information** implies every buyer and every seller knows everything in the market. As soon as a firm brings a new product to the market, other firms start selling the same, identical, product. In practice, say a kebab shop comes up with a secret new ingredient and attracts more custoemrs, but as soon as this happens, other shops copy it. Bottomline: any information-advantage is short-lived in perfect competition. This also leads to the other characterisation, **all products are homogeneous**.

If the firms/customers do not possess full information about the market/products, then you should characterise the market differently i.e. oligopoly, monopolistic competition or monopoly.


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### Answer by username_2 on 2018-01-08. Score: 1

> However, why exactly is having full information about product characteristics important for characterizing perfect competition?

Because in this situation even in extreme case you can be sure, that MC=MB. For example, let's assume that 1 util=1 dollar. There is a pizza with price of 100 dollars and I agree to pay only 100 dollars as maximum (not even 1 cent more), because I expect to derrive 100 utils from its comsumptions. If my estimate of its utility is even slightly off, then I can be worse off by buing it. For example, if it turned out that its consumptions gives me only 99 utils of satisfaction.


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