Perfect Competition Vs. Pure Competition
Perfect Competition vs. Pure Competition
Recently, economists have started distinguishing between perfect competition and pure competition. For pure competition all the above-mentioned conditions of perfect competition need not be satisfied; it is enough if the first two conditions are fulfilled, i.e., there is a large number of buyers and sellers in the market and all producers produce an identical or homogeneous product. The significance or implication of these two conditions taken together is, as explained earlier, that since each individual producer produces only an insignificant proportion of the total market supply of the commodity in question and since the product produced by all producers is identical, no individual producer is in a position to influence the market price of that commodity by his own individual action.
In other words, the AR (average revenue) curve of a producer under pure competition is horizontal straight line parallel to the axis of X. As against this, the essence of monopoly consists in the ability of the monopolist to influence the price of his own commodity (talking in terms of curves, the AR curve of a monopolist always slopes downwards to the right). Thus, we find that the chief characteristic or feature of the pure competition is the absence of monopoly element.
Perfect competition, on the other hand, is a wider concept and requires the fulfillment of several additional conditions (as explained above). The mere absence of monopoly element is not enough for perfect competition, whereas that is sufficient for pure competition. Thus, perfect competition is more restrictive than pure competition, so that while we do come across some cases of pure competition in real life, perfect competition is utterly unrealistic.
Examples of pure competition are to be found in the case of farm products like wheat, cotton, rice, etc. In their case, there is a large number of producers, each producing an insignificant proportion of the total market supply, and besides there is nothing much to choose between the wheat produced by farmer A and the wheat produced by* farmer B. In all these cases, the first two conditions of perfect competition which suffice for pure competition are satisfied, but we cannot indeed think of a commodity which has no cost of transport or the factors of production engaged in whose production may be, perfectly mobile or in the case of which there may be perfect knowledge among its buyers and sellers.
The main difference between pure competition and perfect competition is that in pure competition there is no element of monopoly enabling a producer to charge more. If the two conditions of pure competition are fulfilled, there can be no question of monopolistic control. In perfect competition, apart from absence of monopoly, some other conditions are also essential, e.g., free entry and exit, absence of transport cost, perfect knowledge, etc.