Neoclassical writers lengthened this feature of Smith’s hypothesis of a market structure by devising numerous conditions under which efficient resource distribution and an optimal level of social welfare would be appreciated. The key conditions required for a perfectly competitive market structure are observed as profit-maximizing manufacturers and utility-maximizing customers. an adequately large number of market representatives. no externalities among their activities. perfect mobility of resources between industries. and perfect insight. Given these prerequisites, the competitive process ensures that prices converge towards equilibrium prices. This permits an ongoing exchange of products between market contestants. Not only is the existence of equilibrium prices guaranteed by the market structure, but the removal of disturbances and optimum allocation of resources is caused by competition. These traits of the standard neoclassical view of competition necessitate some criteria. First, this hypothesis of competition can be observed as a ‘quantity theory of competition’.
The strength of competition in the market, for instance, among producers, is calculated by the number of firms in the industry. It is assumed that a larger number of firms will lead to an optimal level of results. Secondly, an essential and key assumption is that prices and quantities converge towards an equilibrium determined by competitive forces. Price and quantity interaction will remove disequilibria between demand and supply. The exogenous alterations of the market systems will disappear over time. An alteration in the method used by manufacturers and an alteration in their structure will, following a short adjustment time, bring about a new competitive equilibrium. Equilibrium will not be caused by an aggressive equalization of disequilibria but is an effect of a constant and smooth procedure of convergence. A third feature of the neoclassical analysis is the elimination of uncertainty, risk, and anticipation.