Pure competition is a market situation where no entity can influence the price of a product, and sellers are price takers. It is rare in reality due to stringent factors, and sellers can easily enter or exit the market without affecting the price. Firms structure production to incur marginal costs for maximum profit.
Also known as perfect competition, pure competition is a situation in which the market for a product is populated by so many consumers and producers that no one entity has the ability to influence the price of the product enough to cause it to fluctuate. Within this type of market environment, sellers are considered price takers, indicating that they are not in a position to price their products outside of a certain range, given the fact that many other producers are active in the market. market. At the same time, consumers have little influence on the prices offered by producers, since there is no single group of consumers that dominates demand.
In reality, pure competition is more theory than fact. While there are rare situations where a market operates with pure competition for a short period of time, the situation typically changes as various factors shift the gridlock created by a multiplicity of sellers and buyers. This is often due to the somewhat stringent set of factors that must be present for the competition to be considered perfect or pure.
There are several essential characteristics that define pure competition. One has to do with the balance from buyers to sellers. When there are an infinite number of buyers who are willing to buy the products offered for sale by an infinite number of producers, at a given price, the opportunity for anyone to take actions that change the market price is extremely limited. The price remains more or less the same, and the same number of buyers buy the products from the same range of producers.
With pure competition, sellers can easily enter or exit the market, without creating undue influence on price. Consumers continue to make purchases at the same rate, even if two companies leave the market and only one new one enters. The collective producers that are still in the market simply continue to produce enough products to satisfy consumer demand, without a change in the market price.
Firms that participate in a market of pure competition generally structure production so that they incur marginal costs at a level where they can make the greatest profit. When the product line is homogeneous, this means that the products produced are essentially the same as the product line produced by other vendors in the market. Assuming that the costs are in line with the marginal revenues, the business can generate a constant profit as long as the condition of pure competition is present in the market.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
