ABSTRACT
In traditional industries the economic model conventionally used to estimate the market function is perfect competition. Perfect competition theory assumes that individual economic agents have no market power. The agents in the economy are price takers. It is generally believed that competition will drive the market price down to the competitive level (equal to the marginal costs) and consumer welfare is improved through allocative and production efficiencies. The perfect competition or nearly perfect market is premised on the assumption that in a market containing many equally efficient firms each firm in the market faces a perfectly horizontal demand curve for a homogeneous product, and that firms freely enter or exit the industry.
