Competitive Market: Definition, Characteristics & Examples

Competitive Market: Definition, Characteristics & Examples
Coming up next: Convergence Theory: Definition & Examples

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:01 Competitive Market Defined
  • 1:21 Characteristics of A…
  • 3:42 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Brianna Whiting
In this lesson, we will look at competitive markets, along with five characteristics that make up this type of market. The lesson will be concluded with a summary and a quiz.

Competitive Market Defined

There are many things about the goods and services we purchase that we hardly give much thought to. For instance, who decided what goods to produce? How much influence does the consumer really have on the products firms decide to make? In this lesson we will take some time to learn about the goods and services that have become such a big part of our lives. A look at these questions and more will help us to better understand the concept of competitive market.

A competitive market is one where there are numerous producers that compete with one another in hopes to provide goods and services we, as consumers, want and need. In other words, not one single producer can dictate the market. Also, like producers, not one consumer can dictate the market either. This concept is also true where price and quantity of goods are concerned. One producer and one consumer can't decide the price of goods or decide the quantity that will be produced.

A great example of competitive market is farming. There are thousands of farmers and not one of them can influence the market or the price based on how much they grow. All the farmer can do is grow the crop and accept whatever the current price is for that product. They do not get to determine the price they want to sell the crop for.

Characteristics of a Competitive Market

Okay, we know that competitive markets contain multiple firms and multiple consumers influencing the products that are produced. So, the next step is looking at the five major characteristics that are often associated with these types of markets.

1. Profit

If there is money to be earned, there is interest. When a firm has the opportunity to make a profit, this provides an incentive for them to go ahead and enter the market. For example, if a company is thinking about producing bubblegum, and they learn that they can make money doing so, they will use that money incentive to enter the competitive market and begin to produce the bubblegum.

2. Diminishability

This simply means that as more products are purchased, there will be less stocks available. As the stocks diminish, the price will rise. For example, if an individual buys a red car, there will be fewer red cars available for other consumers to buy. Therefore, the producer may raise the cost of the red cars because they know that other consumers will be willing to pay more so they can get one of the last remaining red cars.

3. Rivalry

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create An Account
Support