Title: Pure Competition: Meaning, Characteristics
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Content: In a sense, when one producer raises prices, consumers will immediately move to other producers. Moreover, consumers do not bear substantial switching costs. Manufacturers can be free out when they are bankrupt. Furthermore, when companies can adopt a differentiation strategy to a certain degree, the market structure changes into a monopolistic competition. Producers as price takers
The producers in the pure competition market are price takers. In a sense, they take the market price as the price of their product. They do not have the market power to influence market prices, due to the relatively small size of individual supplies, homogeneous products, low entry and exit barriers, and low consumer switching costs. Individually, producers face market demand that is really very elastic (horizontal demand curve), so there is no reason for them to sell prices above the market, even slightly above market prices. The idea is because consumers will immediately switch when they do it. Therefore, if each company charges a price somewhat above the market price, the company will not sell any product.