Summary

The conduct and performance of an industry will depend to some extent on its structure. Among four major types of structures recognized by economists we have focused on the P-Competitive -- sometimes called Perfectly or Purely Competitive -- structure as the one corresponding most closely to the supply and demand model. This structure can be described by four basic characteristics:

All of these characteristics push an industry toward predominant price competition, so P-competitive could also stand for "price-competitive." In the short run, the P-competitive industry's supply curve is its marginal cost curve. In the long run, entry of new firms and exit of firms already in the industry will lead to a price corresponding to average cost, inclusive of the opportunity costs of capital and other resources. In other words, there are no "economic" profits. We also have found that the P-competitive model defines a kind of ideal in which rational self-interest leads to an allocation of resources in which given quantities of outputs are produced by enterprises of an efficient cost-minimizing scale. This remarkable finding is one modern counterpart to Adam Smith's conception of the "invisible hand."

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