This is just an assumption of a mathematical model, not “the basis of the free market”. That’s like saying that the basis of the behavior of gases is the fact that the atoms are perfectly round and perfectly bouncy balls.
Perfect competition can never exist. There is no scenario where market participants (which make the market) will each have perfect knowledge and act perfectly upon that knowledge.
Along with sometimes being smart or hard working, people are also sometimes lazy, dumb, irrational, careless, destructive, and so on. The point being, there is a wide variety and they bring their messy contributions to the market, which makes for a very messy market. There can never be perfect anything. It's not even a good theory, it's garbage, it would only work in a simplistic simulation with no chaos.
Perfection competition theory is incorrect, badly flawed in a similar manner, as the efficient market hypothesis [1].
