In perfect competition, the price is fixed by the forces of market demand and market supply. It is at the price thus determined that all the firms in the industry sell their output. On its own, no firm can affect the prevailing market price. The number of firms under perfect competition is so large, that no individual firm, by changing its sale, can cause any meaningful change in the total market supply. Accordingly, the market price cannot be affected on the basis of market supply.

All firms in a perfectly competitive industry produce homogeneous products. In such a situation, if any firm fixes its price higher than the equilibrium market price, buyers would shift from this firm to other firms in the market. The policy of higher price will simply fail. Firm’s demand curve under perfect competition is perfectly elastic. It means that a firm can sell whatever amount it wishes to sell at the existing price. In such a situation, the policy of attracting buyers by lowering the price would result in unnecessary loss.

Thus, it is concluded that under perfect competition, it is neither possible nor desirable for an individual firm to change the price of the product. The firm is simply a price taker, not a price maker.