What Are Some Examples of Pure Competition?
Examples of pure competition include agricultural markets and the Common Stock Market. In pure competition, product prices are set by market demand, not by sellers.
Pure competition is an ideal economic scenario in which there are a large number of independent sellers and consumers, and the given product is in ready supply. Sellers are unable to decrease the price of a product because it is so readily available from competitors, and consumers are unable to decrease it because there is such wide demand.
Most agricultural markets are good examples of pure competition. Milk, for example, is a product which is fairly similar across suppliers, available in almost every part of the world, is widely consumed and sells at consistent prices. If, however, a large segment of producers were hit by drought or cattle disease, unaffected producers would have a larger measure of control over the market because demand would remain high, but supply would decrease.
The Common Stock Market is another example; common stocks represent the lowest tier of ownership, and are widely available. The Foreign Exchange Market, in which participants buy and sell foreign currencies, is also a good example. It is a network connected electronically and includes participants all over the world, keeping competition — as well as demand — high.
There are few perfect examples of pure competition. In many markets there may be brief periods of pure competition. But, most often, a given market will shift as the number of sellers and buyers fluctuates, leading to changes in production, demand and prices.