Consequences of Competition for the Pricing and Output Decisions of Firms

The consequences of competition for the pricing and output decisions of firms are most easily established in the model of pure competition,1 which requires that 1. Potential buyers and sellers are numerous and each is so small relative to the market that individual decisions about purchases or output do not noticeably affect market demand or supply, nor, consequently, do individual decisions affect the market price. 2. Firms in the industry produce a homogeneous (standardized) good. 3. Barriers to entry or exit are insignificant in the long run; new firms are free to enter the industry if doing so appears profitable or exit if they anticipate losses. Generic office supplies, most agricultural products, and a few other relatively homogeneous goods are produced in highly competitive markets. Each buyer or seller is too insignificant to single-handedly affect the total demand or supply of the good, leaving competitive buyers and sellers as quantity adjusting price takers; they have no choice but to accept the price set in the market.
Price takers are buyers or sellers who are so small relative to a market that the effects of their transactions are inconsequential for market prices.
Thus, individual competitive buyers view the supply curves facing them as perfectly elastic (horizontal) at the current market price. Similarly, competitive sellers perceive the demand curves they face as horizontal at the market price. Rivalry?
Competition usually connotes rivalry. We all grow up competing for grades, merit badges, positions on teams, and dates. Iowa farmers broadly compete with other farmers from all around the globe. How are prices set for their corn, wheat, or pigs? Do farmers argue that their products are superior and so should command a premium price? Clearly not. Nor do they offer coupons or instant winner bingo to compete for buyers. Competitive price setting occurs for basic farm products (from eggs to sugar to orange juice