Competition is a form of market in which the number of buyers and sellers are infinite, and in which the products sold are heterogeneous. Free market, on the other hand, is whereby there is no central government which regulates production and labor. Instead, the sellers and buyers are free to negotiate using their terms until they reach an agreeable price (Mayer, Melitz, & Ottaviano, 2014). This would mean that companies or organization would sell their products at high prices because their customers are willing to pay for them.
A capitalized economy fits in the free market economy since the motive of making profits drives commerce and pushes the businesses to operate as efficiently as possible so that they do not lose the market share to the business' competitors. Social and communist tendencies characterize command economies. The government controls the distribution of resources as well as means of production. Thus, they dictate the prices of goods and services and the wages which the employees are supposed to receive (Mayer, Melitz, & Ottaviano, 2014). Both command economies, as well as free market economies, exist more as general concepts rather than realities. Most of the economies of the world incorporate elements of both systems. For instance, in the United States, companies are allowed to set the pieces, the workers, on the other hand, negotiate wages while the government establishes the conditions, such as the minimum wages and laws.
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One example of a free market where such principles operate is the wholesale vegetable and fruit market where the buyers and sellers meet, and both parties negotiate until they reach a standard price (Mayer, Melitz, & Ottaviano, 2014). Another example is the grey market or street shopping in which there is no fixed price tag on the commodity, and as a result, the buyer may bargain and get the price lowered.
Reference
Mayer, T., Melitz, M. J., & Ottaviano, G. I. (2014). Market size, competition, and the product mix of exporters. American Economic Review , 104 (2), 495-536.
