The reason prices are allowed to rise in a free market is that more sellers would enter the market seeking the excess profits, expanding the limited supply of that good. Eventually prices would return to their original levels. In this case there is NO limited supply, and NO increase in supply as prices go up. The "Perfect Competition" market structure fom the textbooks simply does not apply to this case because prices are not playing a role in the allocation of resources.
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The reason prices are allowed to rise in a free market is that more sellers would enter the market seeking the excess profits, expanding the limited supply of that good. Eventually prices would return to their original levels. In this case there is NO limited supply, and NO increase in supply as prices go up. The "Perfect Competition" market structure fom the textbooks simply does not apply to this case because prices are not playing a role in the allocation of resources.