My book states that one factor defining a perfectly competitive market is its participants having full information about prices and product characteristics. I can understand how having perfect information about prices promotes price taking behaviour (you can't charge me a higher price for your product if I know I can buy it cheaper from other producers). However, why exactly is having full information about product characteristics important for characterizing perfect competition? Thanks in advance.
Perfect information implies every buyer and every seller knows everything in the market. As soon as a firm brings a new product to the market, other firms start selling the same, identical, product. In practice, say a kebab shop comes up with a secret new ingredient and attracts more custoemrs, but as soon as this happens, other shops copy it. Bottomline: any information-advantage is short-lived in perfect competition. This also leads to the other characterisation, all products are homogeneous.
If the firms/customers do not possess full information about the market/products, then you should characterise the market differently i.e. oligopoly, monopolistic competition or monopoly.
However, why exactly is having full information about product characteristics important for characterizing perfect competition?
Because in this situation even in extreme case you can be sure, that MC=MB. For example, let's assume that 1 util=1 dollar. There is a pizza with price of 100 dollars and I agree to pay only 100 dollars as maximum (not even 1 cent more), because I expect to derrive 100 utils from its comsumptions. If my estimate of its utility is even slightly off, then I can be worse off by buing it. For example, if it turned out that its consumptions gives me only 99 utils of satisfaction.