Title: Strengths & Weaknesses of Pure Competition in Economics | Small Business - Chron.com
Headings: Strengths & Weaknesses of Pure Competition in Economics
Strengths & Weaknesses of Pure Competition in Economics
What is Pure Competition?
Strengths of Pure Competition Theory
Weaknesses of Pure Competition Theory
Considerations

Content: In perfect competition, goods are homogeneous, meaning the goods of one producer are exactly the same as the goods provided by another producer, and there are no barriers to entry or exit, meaning new firms can enter the market easily. The net effect of these factors is that under perfect competition, individual firms have no power to influence prices; the market determines prices. Strengths of Pure Competition Theory
The theory of pure competition provides a useful framework for thinking about how to operate a company in a market with many suppliers that provide homogeneous products. The theory also makes intuitive sense: If one company charges more for a homogeneous product than another, customers will avoid the company with the higher price. For example, if there are two gas stations on the same corner and one charges 10 cents more per gallon, customer will likely avoid the more expensive station completely because gasoline is a homogeneous product. Weaknesses of Pure Competition Theory
The main weakness of pure competition theory is that perfect competition does not exist in reality. In addition to having many comparable sellers, many comparable buyers, and a homogeneous product, a market must have perfect information to be perfectly competitive. Perfect information means consumers are aware of any differences in quality and prices between producers.