Pure Competition
Pure competition is said to exist when the following conditions are fulfilled (i) Large Number IJf Buyers and Sellers. One condition of pure competition is that there should be operating in the market a large number of buyers and sellers. If that is so, no single seller or purchaser will be able to influence the market price, because tho output of any single firm is only a small proportion of the total output and of the total demand. Hence, market price has to be taken as given and unalterable by every purchaser and seller. Thus, no individual purchaser can influence the market price by varying his own demand and no single firm is in a position to affect the market price by varying its own output. “Thus the market price is a parameter to be reacted to rather than a variable to be determined.” (ii) Homogeneous» Millard. The .second condition is that the commodity produced by-al] firms should be standardize or identical. In case all farms produce Malayan-S wheat. it is immaterial for the purchaser as to who has produced it. I lc can buy it as well from the other. This condition ensures that the same price rules in the market for the same commodity. The product of each firm is a perfect substitute for the products of all other firms in the industry. It is the purchaser’s opinion which will determine whether the products are identical or not. Even if the products are really identical, the purchaser may have a prejudice against the output of a particular firm and may consider it different. Hence, under pure competition, the consumers do products of different firms. When the commodities are perfect substitutes for one another and their cross elasticity is infinity. In these circumstances, if a firm raises its price. it will lose all the customers. It can sell as much as it likes at the prevailing price. Why should it then think of lowering its price? Hence, a firm cannot raise its price’ nor need it lower it. That is why the prevailing market price is accepted and acted upon by all the dealers. If the above two conditions. viz., homogeneous product and large number of buyers and sellers, are food in a market. it is said to be under pure