Short Answer 
In pure competition, consumer sovereignty allows buyers to influence prices through their purchasing decisions, significantly affecting market dynamics. The intense rivalry among sellers results in limited product differentiation, causing consumers to primarily choose based on price, which can restrict the variety of options available.
Step 1: Understanding Consumer Sovereignty
In a system of pure competition, consumer sovereignty refers to the ability of buyers to influence prices through their purchasing decisions. This means that consumers have a significant say in determining what prices they are willing to pay, which in turn affects how sellers price their products. In such a market, the intense competition among sellers allows consumers to play a crucial role in shaping market dynamics.
Step 2: Role of Competition in Price Determination
In pure competition, the intense rivalry among producers leads to very similar products being offered to consumers. As sellers compete to attract buyers, prices are often influenced by the collective choices made by consumers. This creates an environment where sellers must remain vigilant about the prices they set, as even slight deviations might push consumers toward competitors who offer similar products at lower prices.
Step 3: Limitations of Price Variation
While consumer sovereignty is high, the limited price variation in a purely competitive market can restrict actual choices available to consumers. When products are identical, buyers typically base their decisions on price alone, as there are no differentiating features to consider. Thus, if two products are the same, the choice mainly comes down to who offers the lowest price, thereby limiting the variety of options available in terms of decision-making factors.