In economic competition theory, the zero-profit condition describes the condition that occurs when an industry or type of business has an extremely low (near-zero) cost of entry. In this situation, many people tend to join the industry, seeing the opportunity to make money, until there is no more money to make (supply exceeds demand); the large amount of competition limits each person's share of the market, as well as their ability to pursue a large profit margin. This would represent a situation of almost perfect competition.
For instance, despite the real estate boom of the mid-2000s, the incomes of real estate agents have not risen significantly. It is easy to become an agent, so when profits start to rise, more people do become agents, and the existing agents start to sell fewer houses.
Historically, this condition was present in most gold rushes, as diggings required nothing but manpower and few skills or machinery. It has been noted in such circumstances, that the ancillary services supplying the activity become very successful. For example, few gold prospectors got rich, but many made solid businesses selling shovels.
- "Bubble-lusions: Why most real-estate agents aren't getting rich", Austan Goolsbee, Slate, Aug. 26, 2005.
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