Pure Competition: Definition, Characteristics & Examples

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  • 0:00 Definition and…
  • 1:48 Examples of Pure Competition
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Lesson Transcript
Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

This lesson discusses pure competition. The way that pure competition affects sellers and consumers is explained, as are examples of pure competition.

Definition and Characteristics of Pure Competition

Pure competition is a term that describes a market that has a broad range of competitors who are selling the same products. It is often referred to as perfect competition. Here are some characteristics that define pure competition:

  • In an ideal purely competitive market, the products being sold would be identical, which removes the option of one seller offering something different or better than another seller.
  • Because there are so many competitors in the market offering the same product at the same price, one competitor doesn't have an edge over the others. Essentially, all the sellers are equal.
  • New companies can easily enter the market.
  • The price of products is determined solely by what consumers are willing to pay.

To further illustrate pure competition, let's imagine that you are purchasing assorted color latex balloons. You go to your local party store where you find several different brands of balloons available. There are five different brands of 10-inch assorted color balloons, and they are all priced at 99 cents per package.

Because you have no preference for one brand over another, and the packaging is generic on each brand, you randomly select a package. Because there is not a significant difference in latex balloons, and they are all the same size and price, you are not concerned about which package you buy. They all are essentially the same. In this example, the balloon manufacturers are operating under pure competition because one company does not have an edge over another. Generic products, like balloons, can illustrate pure competition. All the prices are equal, and in the end, the balloons are the same.

Examples of Pure Competition

While it is almost impossible to have a completely pure competition market, there are instances when pure competition is in effect. The following two examples help explain how pure competition could exist.

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