Some economists, notably E.H. Chamberlin and F.H. Knight make distinction between pure competition and perfect competition. According to Chamberlin, “Pure competition is unallowed by monopoly elements.
It is much simpler and less exclusive concept than perfect competition for the latter may be interpreted to involve perfect in many other respects than in the absence of monopoly e.g. perfect mobility or perfect knowledge or such other perfection as the particular theorist finds convenient or useful to him”.
Pure competition involves purity only in one respect, namely absence of monopoly elements, i.e., absence of control over price. Hence, the firm in pure competition is a price taker and the demand curve facing it is perfectly elastic (parallel to the horizontal axis).
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The competitive firm can alter its rate of production and sales within any feasible range without its action having any effect on the price of the product it sells. Thus, the firm passively accepts whatever price happens to be ruling on the market.
Pure competition is said to exist in an industry, where there are a large number of sellers and buyers producing homogenous product. In the industry, entry and exit of the firms is assumed to be free and the Government regulation or control is also supposed to be non-existent.
Pure competition may exceptionally be found in the real life situations. The market for food-grains can reasonably be approximated to pure competition, where large number of sellers and buyers interact with each other for almost homogeneous product.
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The sellers in the market behave like price takers. Even the buyers treat the market price as a given datum that cannot be tempered by them. The conditions quite akin to pure competition are present in the market for almost every agriculture commodity.
Perfect competition is a broader term and involves absence of monopoly as well as presence of other perfections like perfect mobility of the factors of production, perfect knowledge, absence of transportation and selling costs, perfect divisibility of resources. It is difficult to present examples of perfect competition with these perfections besides all the features of pure competition.
Usually, the term pure competition and perfect competition are used interchangeably, since in both the cases sellers as well as buyers are price takers with no control over the prevailing market price. Further, the demand and supply curves of the firms as well as industry are similar in either situation.