Then it would be same as what fiat is today. People would decide on a price for different articles in the marketplace and buy then as per their needs. The only thing is that deflationary supply makes it rise in price and inflation would not happen. Prices of stuff would decrease in the long run instead of increasing, because the bitcoins are being rarer.

But it does not mean that if such an economy would exist then another currency would not come into view. Gold and precious metals would always exist and they have a bustling market as well. In the absence of fiat, what you hypothesize of, precious metals would become similar to money tenders.