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What is Pure Competition?

Scholasticus K May 13, 2019
Any given market has three dimensions, namely, a buyer, seller, and price of the product. Pure competition is a theory in which market conditions are hypothetical. Read ahead to know more...
The world of economics and commerce basically work on the derivations of the behavior of the above given three dimensions. Classical economics was an era where economists such as David Ricardo and Adam Smith, solely studied the dimensions of the market and established different possible scenarios or market models.
There are 4 such common models, or 'competitions': pure competition, monopolistic competition, oligopoly and pure monopoly. As the suggesting and rational equations of economists, the behavior of the price, buyers and sellers differs and is influenced as per the market model or competition. Read ahead to know about the aspects and features of such models.

Pure Competition Explained

The demand for commodities is defined to be elastic, which basically means that there is always going to be demand for goods. Some of the prominent features of pure competition are:
  • There are many sellers and many buyers in the market. The supply of goods is also of high magnitude.
  • The goods are of homogeneous nature or are of similar nature.
  • It is assumed that the government, or any other element plays a neutral or non-regulatory or passive role in the market.
  • The demand and supply analysis plays the role of price maker, and the sellers and buyers are deemed to be price takers.
  • It is also assumed that there is absolutely no controlling seller, that is, no seller adopts a monopolistic approach in supply of goods.
  • The phenomenon of non-regulatory and free trade is also adopted.
  • Lastly, the goods are non-custom goods, that are required for everyday needs, hence the demand and supply.
  • Economists also assume that a pure competitive environment is free of disasters, and natural or man-made calamities.
The overall competition that fulfills all the aforementioned features is virtually impossible to find. Hence finding examples of such competition is virtually not possible, though in some rare cases they can be found.

The Problem with Finding Examples

You will of course wonder that why is it impossible to find an apt or totally fulfilling example. Well, firstly, there is no market in this world that as totally homogeneous products. Agricultural goods market can be said to be an example, however, things such as disasters and government regulation are always existent.
Apart from that, there are also factors such as smaller monopolies or market control by some people tend to exist.

Some claim that bottled mineral water is the best example that almost fulfills the conditions of a pure competitive market. In this case also, the existence of government regulation cannot be ruled out.
Pure market competition, thus, is almost hypothetical and exists only on paper. Critics have dismissed this model on the basis that it has too many assumption, which reduces the rationality and of course the practicality of such a model.