Type of competition in perfect competition. Types of market structures. perfect and imperfect competition. perfect competition market

Competition- the struggle of market participants for the most favorable conditions for functioning (each seeks to maximize their results and minimize costs).

Perfect competition market this is a type of competition in which many producers and consumers operate, while the splitting of economic power is maximum.

Conditions for a perfectly competitive market:

1. Homogeneity of products - the products of these enterprises or firms in the minds of buyers are homogeneous (indistinguishable), i.e. the products of these companies, which operate in a perfectly competitive market, are complete substitutes.

2. Small size and multiplicity of market entities - therefore, each separately considered manufacturer or buyer equally cannot influence the market situation radically in terms of changes in the volume of supply and demand.

3. The absence of barriers to entry and exit of the market - means that resources are completely mobile and move from one activity to another without any problems.

4. Availability of assessment information about technologies, probable profits, etc. Market visibility.

5. The impossibility of market participants to influence the level of the market price.

Benefits of a perfectly competitive market:

1. Production is organized in the most technologically efficient way;

2. Perfect competition leads to the optimal distribution of resources. This means that the industry involves in the production of the amount of resources in the amount that is necessary to cover effective demand.

3. There are no excess profits and losses.

Disadvantages of a perfectly competitive market:

1. Small businesses are often unable to use the most efficient mass production techniques.

2. There are not enough funds for research and development work.

Imperfect Competition- competition in an environment where individual producers have the ability to control the prices of the products they produce.

Most real markets These are markets of imperfect competition. They got their name because competition, and, consequently, the mechanism of market self-regulation, act on them imperfectly.

The most common indicator of the existence of imperfect competition in the market is the non-observance of at least one of the signs of perfect competition.

Based on this, the prerequisites for imperfect competition are:

1) a significant share of sales in the market from individual manufacturers;

2) heterogeneity of the product;

3) the presence of barriers to entry into the industry;

4) imperfection of information;

5) a participant in the competition is able to directly influence the decision of another by non-economic methods;

6) producers have the ability to control the prices of the products they produce;

7) the presence of a monopoly (the presence of one producer) or monopsony (the presence of one buyer);

8) state intervention in the functioning of the market.

There are three models of imperfectly competitive markets:

1. Pure monopoly (maximum market power);

2. Oligopoly (significant power over the market);

3. Monopolistic competition (power over the market is minimal).

Pure monopoly- a form of market in which there is one producer or an association of producers that control the market completely.

Oligopoly is a form of imperfect market in which there are several producers who control a significant part of this market.

Monopolistic competition- a type of market structure in which many firms produce differentiated goods. The products of these firms are close, but not completely interchangeable, i.e. each of the many small firms produces a product that is somewhat different from that of its competitors.

Competition is an economic process aimed at the interaction, interconnection and struggle between enterprises operating on the market in order to ensure all opportunities for marketing their own products, as well as meeting the needs of consumers.

Competition functions

In the specialized literature, the following functions are distinguished that competition performs:

• establishing or revealing the market value of any product;
• equalization of cost with the distribution of profits, depending on the labor costs for production;
• regulation of the distribution of financial resources between industries and industries.

There are various classifications of this economic indicator. For example, perfect and imperfect competition. Let us dwell in this article in more detail on some types in more detail.

Varieties of competition by scale of development

Within this classification, the following types should be distinguished:

• individual, in which one participant seeks to take a certain place in the market to select the best conditions for the sale of services and goods;
• local, determined among sellers in one territory;
• sectoral (within one industry there is a struggle for maximum income);
• intersectoral, expressed in the rivalry of sellers of various industries in the market for additional attraction of buyers to obtain a large income;
• national, represented by the competition of commodity owners within one state;
• global, defined as the struggle of business entities and various countries within the global market.

Types of competition in the context of the nature of development

According to the nature of development, this economic indicator is divided into regulated and free. Also in the economic literature, you can find the following types of competition: price and non-price.

Thus, price competition can arise by artificially lowering prices for specific products. At the same time, price discrimination is widely used, which occurs when the specified product is sold at different prices that are not justified in terms of costs.

This type of competition is most often used in the transportation of goods or products (often it is the transportation of non-durable goods from one outlet to another), as well as in the service sector.

Non-price competition manifests itself mainly due to the improvement of product quality, production technologies, nanotechnologies and innovations, as well as patenting the conditions for the sale of finished products. This type of competition is based on the desire to capture a part of the market of a certain industry through the release of completely new products that are fundamentally different from analogues or by upgrading the old model.

Characteristics of perfect and imperfect competition

This classification takes place depending on the competitive equilibrium in the market. Thus, perfect competition is based on the fulfillment of any equilibrium prerequisites. These may include: many independent consumers and producers, free trade in production factors, independence of economic entities, comparability and homogeneity of finished products, as well as the availability of available information about the state of the market.

Imperfect competition is based on the violation of any prerequisites for equilibrium. This competition is characterized by the following properties: distribution of the market among large enterprises with limited independence, differentiation of finished products and control of market segments.

Advantages and disadvantages of competition

Perfect and imperfect competition have their advantages and disadvantages.

So, based on the definition of perfect competition, which shows the state of the market, where there are producers and consumers that do not affect the market price, which means that there is no reduction in demand for products with an increase in sales volumes, the advantages include:

• facilitating the achievement of compliance with the interests of market participants by using a balanced supply and demand, achieving an equilibrium price and volume;
• ensuring efficient allocation of limited resources in accordance with the information on the pledged price;
• orientation of the manufacturer to the buyer - to achieve the main goal to meet some of the economic needs of the citizen.

Thus, perfect and imperfect competition contribute to the achievement of an optimal and competitive state of the market, in which there is no profit or loss.

With these advantages, there are some disadvantages of these types of competition:

• the presence of equality of opportunity while maintaining inequality of outcome;
• benefits that are not subject to division and individual evaluation in a competitive environment are not produced;
• lack of consideration for the different tastes of consumers.

Perfect and imperfect competition provide insight into how the market mechanism works, but are actually quite rare. The second type of competition determines the influence of producers and consumers on the price and its changes. At the same time, the volume of finished products and access of manufacturers to this market has some limitations.

There are the following conditions in which there are some types of competition (perfect and imperfect):

• in a functioning market, only a limited number of producers should operate;
• there are economic conditions in the form of barriers, natural monopolies, taxes and licenses for penetration into a particular production;
• The market of perfect and imperfect competition in information is characterized by some distortions and is biased.

These factors can contribute to the disruption of any market equilibrium due to the limited number of producers, which sets and subsequently maintains fairly high prices in order to obtain high monopolistic profits. In practice, you can meet the following types of competition (perfect and imperfect including): oligopoly, monopoly and monopolistic competition.

Classification of competition according to the demand and supply of goods or services

Within the framework of this classification, perfect and imperfect market competition take the following forms: oligopolistic, pure and monopolistic.

Considering the above in more detail, it can be noted that oligopolistic competition, in general, can refer to an imperfect form. The following are accepted as key characteristics of a functioning market: a small number of competitors that have a fairly strong relationship; significant market power (the so-called reactive position and measured by the elasticity of the enterprise's response to some behavior of competitors); limited number with the similarity of goods.

The conditions of perfect and imperfect competition are manifested for such industries as: the chemical industry (production of rubber, polyethylene, technical oils and certain types of resins), machine-building and metalworking industries.

Pure competition is a kind that can be classified as perfect competition. The key characteristics of this market are as follows: a significant number of both sellers and buyers without sufficient power to influence prices; undifferentiated (interchangeable) goods sold at prices that are determined by comparing supply and demand, as well as the absence of a kind of market power.

Market structures (perfect and imperfect competition) are widely used in industries that produce consumer goods: food and light industries, as well as the manufacture of household appliances.

There is another type of competition - monopolistic. Its main characteristics include: a large number of competitors with a balance of their forces; the differentiation of goods, expressed by the buyer's consideration of goods in terms of their possession of distinctive features perceived by the market.

Types of market competition (perfect and imperfect) with the help of differentiation convey the following forms: a special technical characteristic, the taste of a drink, a combination of various characteristics. We should not forget about the increase in market power due to the differentiation of goods, which will protect the business entity and make a profit above the average market.

Market classification

The model of perfect and imperfect competition assumes the existence of competitive and non-competitive markets. As criteria for the difference between these markets, it is customary to consider the main features that are characteristic to some extent of the models:

• the number of enterprises in a particular industry with their size;
• production of goods: of the same type (standardized) or heterogeneous (differentiated);
• ease of entry into a particular industry or the exit of an enterprise from it;
• availability of market information to companies.

The market of perfect and imperfect competition has the following features:

• the presence of a certain number of buyers and sellers for a particular type of product, while each of them can produce (buy) only a small share of the total market volume;
• homogeneity of goods from the point of view of buyers;
• the absence of entry barriers for entry into the industry of a newly formed manufacturer, as well as free exit from it;
• availability of complete information for all market participants (for example, buyers are aware of prices);
• rationality in the behavior of market participants who pursue personal interests.

A firm under perfect and imperfect competition

The behavior of an enterprise depends not so much on time as on the type of competition. Considering the rational behavior of the company in conditions of perfect competition, it is necessary to note the following. The goal of any business entity is to maximize profits obtained by increasing the gap between price and costs. In this case, the price should be set under the influence of supply and demand in the market. If the company significantly increases the price of its own finished products, it may lose buyers who purchase similar products from a competitor. And the sales of the specified economic entity may decrease significantly. As for the costs, in this case their value is determined by the technologies used by the enterprise.

Thus, any business entity faces the question of determining the quantity of produced and sold products in order to obtain maximum profit. Therefore, the company has to constantly compare the market price of products and the marginal cost of its manufacture.

An enterprise in conditions of imperfect competition

To achieve the rationality of the enterprise's behavior in the presence of imperfect competition in the market, the following conditions must be met.

In contrast to the above example, under conditions of imperfect competition, the manufacturer can already influence the price of his own products. If, in the conditions of functioning in the market of perfect competition, the income from the sale of products does not contain any changes (equals to the market price), then in the presence of imperfect competition, sales growth can reduce the price, which leads to a decrease in additional income.

In addition to maximizing profits, there are other types of motivation for the activities of the enterprise:

• simultaneously consider and increase sales;
• achievement by the enterprise of a certain level of profit, and then it is already possible not to make any efforts to maximize it.

Conclusion

Summing up the material presented in this article, it is necessary to note the following. The development of competition between manufacturers leads to the separation of large stable companies, with which it is already difficult for other manufacturers to “compete”. Before each newly created manufacturer who wants to take a certain place in a particular industry or market, there may be quite complex barriers. In this case, we are talking about the availability of the necessary financial resources. There are also some administrative barriers that provide for rather stringent requirements for "newcomers" to the market.

In any market economy there is competition. It may be perfect or imperfect. What are their features?

Under perfect competition modern economists understand the state of the market in which:

• in most business segments there are many independent manufacturers, suppliers of goods and services;
• none of the enterprises can set prices that are convenient for themselves - or influence their establishment, since they are regulated by demand from buyers, as well as by the general level of supply from the market;
• price dumping of players on a market scale or at least a segment is practically not observed, since prices below those determined by the market make the business unprofitable.

There are a number of conditions for the formation of a market with perfect competition. It:

• the absence of significant barriers (bureaucratic, financial) for new entrepreneurs to enter the market;
• lack of legislative regulation of prices;
• sufficiently high purchasing power of the population.

In its pure form, perfect competition, if we talk about the scale of national economies, practically does not occur.

In the economic system of almost any country there are industries in which there are, one way or another, barriers to new players or legislative regulation of prices.

Even in the most developed countries there are regions with a low purchasing power of the population - which makes it difficult to open new profitable industries in them.

But almost always one can find in the national economy industries in which competition is formed that is close to perfect. Take, for example, the IT industry.

It is quite possible to develop a successful business in it with minimal barriers and financial costs, in order to then start selling IT solutions at prices dictated by the market.

Regarding the solvency of customers - in most cases, it is possible, having studied the available IT segments, to arrange the release of a product that is sufficiently in demand, for which people are willing to pay.

Facts about imperfect competition

Under imperfect competition modern economists understand the state of the market, in which individual suppliers of goods and services can, in one way or another, set prices that are comfortable for themselves. For example, due to the low saturation of the segment or due to its monopoly position in the market.
There are a number of key factors in the formation of imperfect competition:

• legislative regulation of prices;
• prevalence of dumping, its support by major market players;
• the presence of significant barriers to the entry of new players into the market;
• uneven access of enterprises to markets.

Again, it is difficult to find a national economy that fully corresponds to the signs of imperfect competition. In almost every country in the world there are market segments in which the factors indicated above do not appear, and therefore perfect competition may well form in them.

Comparison

The main difference between perfect competition and imperfect competition is that in the first case, market players cannot set prices that are comfortable for themselves. With imperfect competition, such opportunities are available for individual enterprises that are monopolists, or for the majority - if the market segment is not saturated.

Having determined what is the difference between perfect competition and imperfect competition, we fix the facts we have discovered in the table.

Table

Perfect and imperfect competition

Hello friends! With you is the author of the blog "Actual issues of economics and life, study and grow rich." In the previous article, I told you how to create an information product and make money on the Internet really, and today I will talk about what perfect competition is, imperfect competition and the types of market structures.

1. Perfect Competition
2. Price discrimination
3. Types of Market Structures
4. Monopolistic competition

So let's get started.

The word "competition" comes from the Latin "Concurrentia", meaning clash, competition. Translated into economic language, competition is a struggle between participants in market relations for maximum profit, for a profitable deal. The nature and forms of competition in different market situations differ and have their own characteristics.

Perfect Competition

Perfect competition, a model of a purely competitive economy in which there are no monopolies, provides us with a model or standard against which we can compare and evaluate the performance of a real market economy.

We talk about perfect competition when:

1. There are many independent sellers and buyers in the market;
2. Goods and services offered for sale are homogeneous, there is no product differentiation;
3. Price discrimination does not apply;
4. All resources: labor, capital, etc. move freely between industries;
5. All producers have equal access to price information;
6. There are no barriers to entry and exit from the market.

Let's take a closer look at the above points.

When there are a large number of sellers and buyers in the market, the share of each of them is extremely small. Therefore, a single buyer or seller does not affect the volume of goods sold and its price.

Prices for goods for economic agents are formed according to the laws of supply and demand. The buyer and the seller under these conditions act as a "price taker" and determine only the quantity of goods bought or sold at a given, determined by the market, price of products.

The homogeneity of goods and services is understood as the absence of product differentiation, differences. There are no trademarks, trademarks, advertising is not used. When there is a homogeneous product on the market, price discrimination does not apply.

Price discrimination

Price discrimination is a situation in which the same product (for example, airline tickets) is sold to different people at different prices. The policy of price discrimination is carried out by monopoly firms in order to increase the sales volume of their products.

Price discrimination may be carried out under the following conditions:

• By purchasing products, the buyer does not have the opportunity to resell them. Typically, this applies to the service industry. For example, selling air tickets for the same flight at different prices.
• It should be possible to divide all consumers into groups with varying degrees of elasticity of demand.

When price discrimination is carried out, the monopolist's income increases. At the same time, more consumers use this type of service. Thus, price discrimination is beneficial to both the seller and the buyer. The seller increases the volume of sales, the buyer receives satisfaction of his needs.

A striking example of price discrimination is the sale of air tickets for the same flight to different categories of citizens at different prices.

Thus, in a perfectly competitive market there is no price discrimination: a homogeneous product is sold at the same price to all buyers, there are no monopolies.

All resources: labor, land, capital, move freely from industry to industry. There are no barriers to enter and exit the market. Entrepreneurs are guided, first of all, by their economic benefit, how profitable or unprofitable production in a particular industry is.

The market system is extremely flexible. Consumer preferences and applied technologies influence market prices. If an entrepreneur sees that the price of products in any industry is growing, he directs the resources he has here. And vice versa, it curtails production where the price of products falls.

All sellers and buyers in a perfectly competitive market are free to choose what and how to produce, what and where to buy.

It is through the rise or fall of prices that the economic expediency of increasing or reducing the production of a particular product is manifested. Capital and other resources rush to where it is more profitable, where the rate of profit is higher.

All market participants have equal access to price information. When the service sector prevails in the structure of GDP over the sphere of material production, we are talking about the formation of a post-industrial society.

A post-industrial society is a modern market economy, where the service sector in the structure of the economy far exceeds the share of material production. For example, in the structure of the US economy, the service sector is 81%.

Free entry and exit to the market implies the absence of barriers to entry in the industry for firms of all sizes. There is free market competition when the more efficient commodity producer wins.

In conditions of perfect competition, there are no monopolies, state regulation of the economy, inflation, etc.

If at least one of the conditions of perfect competition is not met, it turns into imperfect competition and various market structures appear on the market.

Types of Market Structures

Under the market structure refers to the conditions of competition between producers.

The type of market structure is determined by the size of firms and their number, whether the product is differentiated or homogeneous, whether there are barriers to entry and exit from the market, how much price information is available, etc.

In a modern market economy, the following types of market structures are distinguished:

• perfect competition
• monopoly
• oligopoly
• monopolistic competition.

Each market structure differs from another in the level of competition and the ability to influence prices.

Such a structure as a monopoly has the maximum opportunity to influence the price, since the monopolist produces, as a rule, a unique product that does not have close substitutes. Consequently, the monopolist has practically no competitors in the market, and the barriers to entry into the industry for other entrepreneurs are as high as possible.

An entrepreneur needs to distinguish between types of market structures, since, depending on competition, the behavior of an entrepreneur in the market must also be adjusted.

In real market conditions, perfect competition and pure monopoly practically do not occur and are rather abstract structures. At the same time, oligopoly and monopolistic competition are the most common types of market structures.

Imperfect Competition observed when at least one of the signs of perfect competition is not observed. As soon as the first monopoly appeared at the end of the 19th century, perfect competition ceased to exist. The market has become a market of imperfect competition with all the types of market structures inherent in it.

The level of competition in an imperfectly competitive market and the height of entry barriers to an industry vary depending on the type of market structure. Monopoly- an extreme case, a situation where only one firm controls the entire market. The barriers to entry for other firms are virtually insurmountable.

If the number of firms in the industry is limited, usually up to 10 large firms, this market situation is called an oligopoly.

Barriers to entry into the industry are much lower compared to a monopoly, although they are still quite high.

Oligopoly- This is a type of market structure in which several large firms dominate the market and compete with each other through price and non-price competition.

Monopolistic competition

Even lower barriers to entry into the industry are observed when there are many firms on the market, the product is differentiated, and the ability of an individual producer to influence the price is practically reduced to zero. This type of market structure is called monopolistic competition. These are usually small and medium-sized firms.

In conditions of monopolistic competition, where dozens and hundreds of firms compete with each other in the market, it is almost impossible to agree on prices.

Each commodity producer decides independently: what to produce, how to produce and at what price to sell the produced product. The price, of course, is not taken from the ceiling, but based on the cost of the product.

Under conditions of monopolistic competition, collusion between market participants is practically impossible. Each economic agent independently determines its pricing policy. The actions of all other participants in market competition cannot be predicted.

If a firm operates in the market under conditions of monopolistic competition, then it needs to take into account the tastes of the consumer in order to sell its products. Product differentiation in such a market is maximum.

Consumer goods, food and light industries, and the service sector are examples of industries with monopolistic competition, where product differentiation is expressed not only in the difference in the quality characteristics of the goods, but is also associated with after-sales service.

Non-price competition comes out on top. One of the main methods of non-price competition is advertising.

Advertising is the engine of trade, as it forces the producer to modify and improve the product, increases competition, weakens monopoly power, and helps consumers to get acquainted with new products. With the help of advertising, national communication systems are financed - print, radio, television.

• bias (sometimes it misinforms rather than enlightens);
• high costs that are reflected in the price paid by the consumer;
• self-neutralization tendency (Snickers, Mars, Milky Way, etc.);
• creating financial barriers to entry into the industry. On the Internet, the cost per click is so high that it makes it impossible for small producers or newcomers to the market to organize an advertising campaign.
• "contamination" of the media. The abundance of advertising annoys many.

In conditions of monopolistic competition, barriers to entry into the industry are easily overcome. A firm - a market participant does not have to be large, and the capital required to organize a business is usually small.

However, relatively easy conditions for entry into the industry does not mean that barriers are completely absent. Barriers can be patents, licenses or trademarks. To use someone else's brand, you need to pay for a franchise. Very often large sums.

Price competition is a situation where a product with similar characteristics and similar quality has a different price.

According to the law of demand, there is a greater chance of being bought from the product that has a lower price, all other things being equal.

However, if the company has created a brand for itself, a good reputation (reputation), then its products are sold well and at higher prices compared to competitors.

This situation is most common in an oligopoly situation. I will cover this topic in more detail in a future article. If you want to stay in the know, subscribe to blog updates!

So, you have learned about what is perfect competition, imperfect competition, what types of market structures exist in the modern market.

What is the difference between perfect and imperfect competition - money and finance in simple terms

Any business is conducted in a competitive environment. Competition generates interaction and at the same time struggle between enterprises operating in the same field.

Each market participant tries to provide for himself the most favorable working conditions in order to obtain maximum results at minimum cost.

Competition performs several important functions at once:

• determination of the market value of goods and services;
• promoting the equalization of prices for goods and services, taking into account the profits received and production costs;
• regulation of the distribution of funds between companies and industries.

Economists distinguish between such concepts as perfect and imperfect competition. Perfect competition provides for the conduct of activities in the market by many producers of goods and services.

In imperfect competition, the situation is often reversed. As a rule, imperfect competition appears when at least one of the signs of perfect competition is not observed in the market.

In other words, perfect competition is based on the fulfillment of equilibrium prerequisites, imperfect competition is based on violation of the same prerequisites.

Let's look at both types of competition in more detail.

Perfect competition is a market situation in which:

• there are a large number of independent manufacturers and suppliers;
• market participants cannot form prices for goods and services that are convenient for themselves, since they are regulated by consumer demand and the general level of market offers;
• price dumping of market participants is practically impossible, since a decrease in value below the established market value leads to unprofitable business;
• information about production technologies, possible profits and other aspects of doing business is available.

Various factors influence the formation of a market with perfect competition.

The main ones can be called:

• lack of financial and other barriers to new market participants entering the market;
• lack of price regulation by the legislature;
• high purchasing power of citizens.

Taking into account all these factors, perfect competition in its true form is not so common, because in many areas there are certain barriers or legislative price regulation.

Purchasing power is also an unstable and relative concept.

At the same time, there are industries in the state with competition close to perfect. Such an industry, for example, is the sphere of IT-technologies.

Characteristics of imperfect competition

Imperfect competition implies conditions opposite to those listed above. With imperfect competition, certain market participants can set the desired prices for goods and services (convenient for themselves). This is facilitated by low saturation of the segment or a banal monopoly.

The following factors contribute to the formation of imperfect competition:

• regulation of the cost of goods and services by legislative bodies;
• frequent cases of dumping by leading market participants;
• the presence of any barriers to the entry of new players into the market;
• uneven access of participants to markets for products.

Most existing markets are markets with imperfect competition.

There are three types of such markets:

• markets with pure monopoly (market control is completely exercised by one manufacturer or one group of industries);
• markets with an oligopoly (the majority of the market is controlled by a few specific producers);
• markets with monopolistic competition (in the market, many companies produce differentiated products, which are not interchangeable).

List of main differences

The main differences between perfect and imperfect competition are summarized in the following table:

Thus, the behavior of an enterprise in the market directly depends on the existing type of competition.

The enterprise determines the quantity of manufactured products and the cost of its implementation based on market conditions, the market value of similar goods and the cost of their manufacture.

For example, if a company under conditions of perfect competition significantly increases the price of its products, it risks losing customers who will purchase similar products from competing firms at a lower cost.

With imperfect competition, on the contrary, a company can raise prices for goods without risking being left without profit - buyers will still buy them because there is no alternative.

Perfect and imperfect competition: essence and characteristics

Evgeny Malyar

# business vocabulary

In reality, competition is always imperfect, and is divided into types, depending on which condition corresponds to the market to a greater extent.

• Characteristics of perfect competition
• Signs of perfect competition
• Conditions close to perfect competition
• Advantages and disadvantages of perfect competition
• Advantages
• Flaws
• perfect competition market
• Imperfect Competition
• Signs of imperfect competition
• Types of imperfect competition

Everyone is familiar with the concept of economic competition. This phenomenon is observed at the macroeconomic and even household level. Every day, choosing this or that product in the store, every citizen, willingly or not, participates in this process. And what is the competition, and, finally, what is it in general from a scientific point of view?

Characteristics of perfect competition

To begin with, a general definition of competition must be adopted. Regarding this objectively existing phenomenon, accompanying economic relations from the moment of their inception, various concepts have been put forward, from the most enthusiastic to completely pessimistic.

According to Adam Smith, expressed in his Inquiries into the Nature and Causes of the Wealth of Nations (1776), competition with its "invisible hand" transforms the selfish motives of the individual into socially useful energy. The theory of a self-regulating market assumes the denial of any state intervention in the natural course of economic processes.

John Stuart Mill, who was also a great liberal and a supporter of maximum individual economic freedom, was more cautious in his judgments, comparing competition with the sun. Probably, this eminent scientist also understood that on a too hot day a little shade is also a blessing.

Any scientific concept involves the use of idealized tools. Mathematicians refer to this as having no width "line" or dimensionless (infinitely small) "point". Economists have a concept of perfect competition.

Definition: Competition is the competitive interaction of market participants, each of which seeks to obtain the greatest profit.

As in any other science, in economic theory a certain ideal model of the market is adopted, which does not fully correspond to the realities, but allows one to study the ongoing processes.

Signs of perfect competition

The description of any hypothetical phenomenon requires criteria to which a real object should (or can) aspire. For example, doctors consider a healthy person with a body temperature of 36.6 ° and a pressure of 80 to 120. Economists, listing the features of perfect competition (also called pure competition), also rely on specific parameters.

The reasons why it is impossible to achieve the ideal are not important in this case - they are inherent in human nature itself. Each entrepreneur, receiving certain opportunities to assert their positions in the market, will definitely use them. However, hypothetical Perfect competition is characterized by the following features:

• An infinite number of equal participants, which are understood as sellers and buyers. The convention is obvious - nothing limitless exists within our planet.
• None of the sellers can influence the price of the product. In practice, there are always the most powerful participants capable of carrying out commodity interventions.
• The proposed commercial product has the properties of uniformity and divisibility. Also purely theoretical. An abstract commodity is something like grain, but even it can be of different quality.
• Complete freedom of participants to enter or leave the market. In practice, this is sometimes observed, but by no means always.
• Possibility of problem-free movement of production factors. Imagine, for example, a car factory that can be easily transferred to another continent, of course, you can, but this requires imagination.
• The price of a product is formed solely by the ratio of supply and demand, without the possibility of influence of other factors.
• And, finally, the complete public availability of information about prices, costs and other information, in real life, most often constituting a trade secret. There are no comments here at all.

After considering the above features, the conclusions are:

1. Perfect competition in nature does not exist and cannot even exist.
2. The ideal model is speculative and necessary for theoretical market research.

Conditions close to perfect competition

The practical utility of the concept of perfect competition lies in the ability to calculate the optimal equilibrium point of the firm, taking into account only three indicators: price, marginal cost and minimum total cost.

If these figures are equal to each other, the manager gets an idea of ​​​​the dependence of the profitability of his enterprise on the volume of production.

This intersection point is visually illustrated by a graph on which all three lines converge:

Where: S is the amount of profit; ATC is the minimum gross cost; A is the equilibrium point; MC is the marginal cost; MR is the market price for the product;

Q is the volume of production.

Advantages and disadvantages of perfect competition

Since perfect competition as an ideal phenomenon in the economy does not exist, its properties can only be judged by individual features that manifest themselves in some cases from real life (at the maximum possible approximation). Speculative reasoning will also help to determine its hypothetical advantages and disadvantages.

Advantages

Ideally, such competitive relations could contribute to the rational distribution of resources and the achievement of the greatest efficiency in production and commercial activities.

The seller is forced to reduce costs, since the competitive environment does not allow him to raise the price.

In this case, new economical technologies, high organization of labor processes and all-round thrift can serve as means of achieving advantages.

In part, all this is observed in real conditions of imperfect competition, but there are examples of a literally barbaric attitude towards resources on the part of monopolies, especially if state control is weak for some reason.

An illustration of the predatory attitude to resources can be the activities of the United Fruit company, which for a long time ruthlessly exploited the natural resources of the countries of South America.

Flaws

It should be understood that even in its ideal form, perfect (aka pure) competition would have systemic flaws.

• First, its theoretical model does not provide for economically unjustified spending on achieving public goods and raising social standards (these costs do not fit into the scheme).
• Secondly, the consumer would be extremely limited in the choice of a generalized product: all sellers offer in fact the same thing and at about the same price.
• Third, an infinitely large number of producers leads to a low concentration of capital. This makes it impossible to invest in large-scale resource-intensive projects and long-term scientific programs, without which progress is problematic.

Thus, the position of the firm in conditions of pure competition, as well as the consumer, would be very far from ideal.

perfect competition market

The closest to the idealized model at the present stage is the exchange type of the market. Its participants do not have bulky and inert assets, they easily enter and leave the business, their product is relatively homogeneous (estimated by quotations).

There are many brokers (although their number is not infinite) and they operate mainly with supply and demand values. However, the economy does not consist of exchanges alone.

In reality, competition is imperfect, and is divided into types, whichever condition suits the market best.

Profit maximization in conditions of perfect competition is achieved exclusively by price methods.

The characteristics and model of the market are important for determining the possibilities of functioning in conditions of imperfect competition. It is hard to imagine that a huge number of sellers offer absolutely the same type of product, which is in demand among an unlimited number of buyers. This is the ideal picture, suitable only for conceptual reasoning.

In the real world, competition is always imperfect. At the same time, there is only one common feature of the markets of perfect and monopolistic competition (the most common) and it consists in the competitive nature of the phenomenon.

There is no doubt that business entities seek to achieve advantages, take advantage of them and develop success up to full mastery of all possible sales volumes.

In all other respects, perfect competition and monopoly differ significantly.

Imperfect Competition

Real, that is, imperfect competition, by nature tends to disturb the balance.

As soon as the leading, largest and strongest players stand out in the economic space, they divide the market among themselves, without ceasing to compete.

Thus, most often the matter is not in the degree of "perfection" of competition, but in the very nature of the phenomenon, which has limited properties of self-regulation.

Signs of imperfect competition

Since the ideal model of "capitalist competition" has been discussed above, it remains to analyze its differences with what happens in a functioning world market. The main signs of real competition include the following points:

1. The number of producers is limited.
2. Barriers, natural monopolies, fiscal and licensing restrictions objectively exist.
3. Market entry can be difficult. Exit too.
4. Products are produced in a variety of quality, price, consumer properties and other features. However, they are not always separable. Is it possible to build and sell half of a nuclear reactor?
5. Mobility of production takes place (in particular, towards cheap resources), but the processes of moving capacities themselves are very costly.
6. Individual participants have the opportunity to influence the market price of the product, including non-economic methods.
7. Technology and pricing information is not public.

From this list it is clear that the real conditions of the modern market are not only far from the ideal model, but most often contradict it.

Types of imperfect competition

Like any non-ideal phenomenon, imperfect competition is characterized by a variety of forms. Until recently, economists simplistically divided them according to the principle of functioning into three categories: monopoly, oligopolistic and monopolistic, but now two more concepts have been introduced - oligopsony and monopsony.

These models and types of imperfect competition deserve detailed consideration.

Oligopoly

There is competition in the market, but the number of sellers is limited. Examples of such a situation are large supermarket and retail chains or mobile operators. Entry into the business is difficult due to the need for huge initial capital investments and permits. The division of the market often (not always) occurs according to the territorial principle.

Monopoly

Full sole mastery of the market in most cases is not allowed by legislative norms. The exceptions are usually natural monopolies owned by the state, as well as suppliers with reasonable ownership of the product delivery infrastructure (for example, electricity, gas, water, heat).

Monopsony

This type of imperfect competition occurs when only one consumer can purchase a manufactured product.

There are types of products intended, for example, exclusively for state structures (powerful weapons, special equipment). In economic terms, monopsony is the opposite of monopoly.

This is a kind of dictate of a single buyer (and not a manufacturer), and it is not common.

There is also a phenomenon in the labor market. When only one, for example, a factory operates in a city, then the average person has limited opportunities to sell his labor.

Oligopsony

It is very similar to monopsony, but there is a choice of buyers, albeit small. Most often, such imperfect competition occurs between manufacturers of components or ingredients intended for large consumers.

For example, some recipe component can only be sold to a large confectionery factory, and there are only a few of them in the country.

Another option - a tire manufacturer seeks to interest one of the car factories for the regular supply of its products.

As a result, we note: any competition that exists in real conditions is as imperfect as the market itself. From the point of view of economic theory, perfect competition is a simplified concept. It is far from ideal, but necessary. Doesn't it surprise anyone that physicists use different mathematical models and scientific assumptions?

Imperfect competition is diverse in forms, and it is possible that new ones will be added to its already existing types in the future.

Competition and monopoly in the economy - All about individual entrepreneurship

There is a lot of talk about competition in the economy, but it all comes down to undermining the position of similar firms operating in the market in a variety of ways.

Fortunately, business theorists have already developed many legal forms of combating competition that allow truly strong and worthy companies to win in the market.

But many do not disdain banal dumping, and pirate thefts of customer bases, and poaching employees, and bribing them.

In this article we will give the concept of competition, its classification, types, the concept of monopoly as the antipode of competition. In subsequent articles, the concept of competition will be considered in more practical aspects, in relation to the activities of individual entrepreneurs.

Definition of competition

The original word of the Latin language, from which "competition" is derived, means "to run, to collide." The modern concept of the word is as follows: competition is a rivalry or struggle between the subjects of the economy, that is, between enterprises.

The purpose of this struggle is to own the largest segment of the market, use a large number of bonuses and prospects in the struggle for a buyer.

Only market leaders can effectively use production factors, which is why competition is an endless and complex process.

Economic science often uses the concept of "business competition".

It means competition in the economy among business entities, each of which takes actions to capture the market, thereby limiting the possibilities of other entities.

In the process of competition, there is a unilateral influence of one subject on the economic conditions of another, or on several market participants.

The economy is a multifaceted process, it is regulated by numerous laws. In Russia, there is the Law “On Protection of Competition”, which gives its own definition of competition. It allows entrepreneurs to engage in activities to influence the market, but it is prohibited to create conditions for restricting the operation of the entire market.

The role of competition in the market

In the vast array of intricacies of economic moves, competition is at a very high level. The growth of the country's well-being depends on the correctness of competitive actions. Competition and its types are considered by general economic laws as competition in the market, which encourages doing business at a high level, ensuring overall economic growth.

The second very useful effect of competition is self-regulation of the market. As they say, the strongest survive, that is, the one who will bring more benefits to the economy and prosperity of the country.

And the third factor - competition determines the types of market by industry. This is important when dividing all enterprises according to directions, when creating industry unions and associations. That is, the efforts of enterprises become narrowly focused, forces are not spent on the fight against all market players.

The actions that are included in the concept under consideration are divided into two types: perfect and imperfect competition.

Perfect competition is the action in the market that is directed to a large number of buyers, as well as to numerous producers or sellers of goods.

Each of the market participants is small in size and occupies a small share in the country's total gross product. Consequently, none of the market participants can dictate the terms of sales and can not influence the general processes of the entire market.

Information in such a market is publicly available and easily obtained. All participants in market processes are provided with data on competitive prices, on their dynamics, on sellers, their ways and methods of work, on buyers, their standard preferences, facts of behavior.

Moreover, it is possible to receive information both on the local market, and on the regional and all-Russian. Under perfect competition, there is no domination of the producer over the market, and its influence on price formation is impossible.

The market is regulated only by supply and demand.

It should be noted that there is no perfect competition in the world, there are only some of its features in certain sectors of the economy. Any competition can only approach the full model of perfect competition.

Perfect competition is possible only in an ideal market, which also does not exist in practice. But, we repeat, the ideal market model has been developed, and its individual features are being implemented with the help of numerous state and non-state decisions and processes.

One of the hallmarks of an ideal market is the absence of entry barriers. They are called a high level of start-up capital, the complexity of paperwork and obtaining permits, a high level of average salaries of required specialists, etc.

The easier it is to organize a business, the lower the entry barriers. The same applies to exit barriers. Each industry has its own barriers and the difficulty of entering the market is individual.

For example, in the hairdressing business, it is one, and in the spacecraft construction market, it is different.

The second sign of an ideal market is the absence of restrictions on the number of companies operating in it. To do this, you can increase the market capacity, for example, by searching for customers on the Internet. Or you can create many small companies in a large economic space.

The next sign is that a variety of goods on the market is not allowed. That is, if there is toothpaste on the shelves, then it is 2-3 types. If there is sausage, then only Doktorskaya. This idealism in the market would deprive buyers of choice, but the competition would become as transparent as possible.

In addition, none of the market participants could put pressure on any other partner, all actions would be performed by common consent.

Agree that work in such conditions would be completely cloudless, the business would reach a state of prosperity in a very short time and with a probability of 99%.

But in this case, the need for training, self-improvement, and the desire for development would disappear. The work would become much less interesting, and the number of not very literate businessmen would grow exponentially.

Therefore, it is encouraging that a perfect market and perfect competition are not possible by definition. But their individual features and components must be put into practice in order to make the economy a civilized and developing process that stimulates growth and a culture of production.

By the way, analysts say that agriculture is as close as possible to the ideal market in our country.

Antimonopoly authorities

In almost all states, monopoly is recognized as a harmful and unnecessary phenomenon, therefore, antimonopoly laws are being developed and are in force, the subject of regulation of which is competition and monopoly. They are enforced by the antimonopoly authorities. They exercise control and regulation of prices, promote the reform of the structure of natural monopolies.

The main body that deals with these processes in Russia is the Federal Antimonopoly Service. If the entrepreneur wishes to ask for clarifications or complaints, it is necessary to find a local branch of the service. They are usually if in every locality.

The service employs professional lawyers who will accept the application and draw up a detailed response to it. Even 5-10 years ago, a large number of complaints came across the lack of regulatory mechanisms in the law, today many of them have become more advanced.

E.Shchugoreva

Watch two videos on why you shouldn't be afraid of your competitors:

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Imperfect competition is an economic phenomenon, a market model in which manufacturing firms have the opportunity to have a real impact on the price of goods. On the other hand, there is the concept of perfect competition. This economic model is a system characterized by an infinite number of buyers and sellers, homogeneous and divisible products, high mobility of production resources, equal and complete information access of all participants to the price of products, goods, and the absence of any barriers to entry and exit to the market. Violation of at least one of these conditions theoretically means imperfect competition.

It is clear that achieving the conditions of pure competition is practically impossible, while imperfect competition is a phenomenon that is widespread everywhere.

Imperfect competition as an economic phenomenon

Based on the properties inherent in the conditional model of perfect competition, it is possible to determine what features are inherent in imperfect competition and how they manifest themselves in real market conditions.

This structure is characterized by various kinds of barriers that restrict entry into and exit from a particular market sector. There are limitations in product price information. The product itself is either unique, or its properties are differentiated compared to others, which leads to the ability of manufacturers and sellers to control prices for it: to overestimate, to keep it at a certain level. The goal is to maximize profit.

A striking example of imperfect competition are natural monopolies - firms whose activities are related to the supply of energy resources (electricity, gas) to the population. At low costs, such monopolists can set any price for their products in the future, while entry barriers to this market for newcomers are insurmountably high.

The characteristic features of market relations under imperfect competition are thus determined quite firmly:

1. Monopolies, small and medium businesses are present on the market at the same time. They compete with each other, but monopolists, to one degree or another, have an advantage in regulating prices. This applies to both buyers and sellers of the product.
2. Imperfect competition in the future is aimed at monopolizing the market (sales, raw materials, labor market, etc.), in contrast to perfect competition, which is characterized by the main goal - the sale of goods.
3. The process of competition captures not only sales markets (retail, wholesale), but also production. Innovative developments in the manufacturing sector are turning into a method of dealing with competitors. The purpose of their implementation is to reduce production costs.
4. Various methods of competition are used: from the use of price levers, as the most obvious, to non-price ones, aimed at improving the properties of the product, improving marketing and advertising policies. Non-economic methods are also used, which are usually referred to as unfair competition.

Forms of struggle for markets under imperfect competition have the following characteristics:

• price- lowering prices for products, reducing costs in the production and marketing process, manipulating pricing, price maneuvers designed to attract a buyer;
• non-price- emphasis on the quality of the product, attracting customers with the help of various promotions, offering a larger volume of goods or services for an equal price, non-standard advertising campaigns;
• non-economic- industrial, economic espionage, bribery of responsible persons, etc.

Imperfect competition in all its diversity was considered in the works of E. Chamberlin, J. Hicks, J. Robinson, A. Cournot.

Forms of imperfect competition

Oligopoly characterized by a fairly limited number of sellers of goods or services (market of communications services). Oligopsony- a fairly limited number of buyers (labor market in small towns). At monopolies there is only one seller on the market (gas supply). At monopsony- the only buyer (sale of heavy weapons).

At monopolistic competition there are a large number of manufacturers and sellers in the market sector selling similar in properties, but non-identical goods (most often found in retail, consumer services).

Specialists conduct a comparative analysis of these forms in the context of four market factors:

• the number of sellers (manufacturers);
• market product differentiation;
• the ability to influence prices;
• entry and exit barriers.

For example, in the case of a monopoly, the quantitative indicator is one, prices are completely controlled, products have unique qualities, and barriers to entry are very high, etc.

Labor market

Imperfect competition in the labor market is a complex phenomenon involving several important factors. It should be noted that this market sector is the most subject to regulation in order to minimize the negative consequences of the “imperfect market”.

Regulatory factors of the labor market:

1. State. Legislatively regulates the level of wages, preventing it from completely falling under the influence of market processes (income indexation, establishing a minimum wage, etc.).
2. trade union organizations. Direct efforts to increase the level of remuneration of workers in the industry, the region, prepare and carry out the signing of agreements between trade unions and employers - market participants, in this direction.
3. Large firms, corporations. They set the level of remuneration of specialists, which they hold for a long time. They are not interested in the frequent revision of the level of remuneration of employees.

Market laws in relation to the labor market work in a special way. The sale of labor force, skills and abilities is fixed, as a rule, by a long-term employment contract, which gives guarantees of employment to the employee, despite fluctuations in supply and demand. In addition, an individual labor contract or agreement cannot contain conditions that are worse than those fixed in the collective agreement or in labor legislation.

The seller in this case receives guarantees of employment, is withdrawn from market relations for the duration of the contract with the buyer.

The presence of restrictions on worse conditions in comparison with the collective agreement does not allow the employer to endlessly worsen the conditions of individual agreements, choosing the most “compliant” sellers. This factor is most significant if there is no trade union organization.

Imperfect competition and government regulation

Imperfect competition, being far from ideal models of building an economy, has its own negative aspects and consequences: an increase in product prices that is not justified by an increase in costs, an increase in production costs themselves, a slowdown in progressive trends, a negative impact on competitiveness on a scale of world markets, and finally, a slowdown in development economy.

At the state, governmental level, there are always administrative barriers for market participants, for example, exclusive rights that the state gives to a particular company.

On a note! Regulatory barriers can be expressed not only in state regulation as such, but also in the possession of the right to rare natural resources, progressive scientific and technical developments, confirmed by a patent, a high level of start-up capital required to enter the market sector.

At the same time, the state, realizing the global danger of market monopolization, is fighting it. Antitrust regulation – a package of antitrust laws that is constantly evolving to reflect market trends. Based on it, administrative antimonopoly control of markets is carried out by authorized state antimonopoly structures. An effective mechanism for influencing monopolists is being developed.

Control is represented by a set of financial sanctions, the organizational mechanism does not affect the monopolists themselves, destroying them as a market phenomenon, but indirectly by supporting small and medium-sized businesses, reducing customs duties, etc. Legislative regulation often directly prohibits certain economic steps that contribute to the formation of even more large monopolies, for example, the merger of large firms in a certain market sector.

Results

1. Imperfect competition, as opposed to a perfect, ideal model, exists in the real market structures of the modern economy. The purpose of imperfect competition is to capture the market, its monopolization.
2. Forms of imperfect competition differ in the number of sellers and buyers in a given market sector. You can conduct a comparative analysis of each form, paying attention to the level of barriers to entry into the market, the ability to influence prices, etc.
3. The labor market in conditions of imperfect competition is subject to many regulatory factors from the state, trade unions, and large companies.
4. The presence of an employment agreement leads to a temporary withdrawal of the seller from the labor market, allows him to guarantee stable employment, i.e. demand for the labor resources that it possesses.

Jumpingtion- this is the rivalry between the participants of the market economy for the best conditions for the production, purchase and sale of goods.

Distinguish between perfect and imperfect competition

Perfect Competition- this is the rivalry of numerous manufacturers that create approximately the same volumes of identical (completely replaceable) products.

Imperfect Competition in contrast to the perfect is limited by the influence of monopolies and the state.

There are following models of imperfect competition:

Competition as a factor in the marketing environment

The company operates in the market in a competitive environment. Competition- rivalry between goods and enterprises aimed at capturing the attention of potential consumers. Competition is the basis of the mechanism of commodity production and the market economy. On fig. 1 shows the main difference between monopoly and competition.

Rice. 1 The difference between competition and monopoly

1. Investments in the development of small and medium-sized businesses and benefits for their organization.
2. Special customs policy.
3. Dismemberment of monopoly structures and the effect of antimonopoly legislation.

All these decisions must have a clear legal basis.

There are several types of competitive structures, the specifics of which must be taken into account when creating and implementing marketing programs for enterprises operating in a particular type of structure.

I. occurs when a company manufactures a product for which there is no substitute.

1. Due to the fact that the enterprise has no competitors, it completely controls the supply of these products and, as the only seller, can create barriers for potential competitors.
2. In the real world, the monopolies that exist to this day are some public utilities, such as electricity and cable communications, and are largely regulated by government agencies. The existence of natural monopolies is allowed, since their development and operation require gigantic financial resources; a small number of organizations may concentrate such resources to, for example, compete with a local electric company.
3. The main goal of marketing in a monopoly is to control the market and maintain the uniqueness of the product.

II. occurs when a small number of suppliers control a significant proportion of the supply of products. In this case, each of the suppliers must take into account the reactions of other suppliers to changes in market activity.

1. The products produced by oligopolies can be homogeneous, such as aluminum, or differential, such as cigarettes and cars.
2. For example, because of the huge financial outlay required, very few businesses can afford to enter the oil refining or steel market.
3. Some industries require a certain level of technical and marketing skills, which is an insurmountable barrier for many potential competitors.
4. Enterprises in the oligopolistic market try to avoid price wars due to the fact that such an approach is costly for everyone involved in the war.

III. occurs when a firm's potential competitors attempt to develop a differential marketing strategy in order to capture a portion of the market.

1. There are several firms, but a different marketing structure, although the products are similar.
2. There is a possibility of market penetration, since the initial costs are not very high.

3. Distinctive features of goods are important.

IV., if it existed at all, would mean that there are a large number of sellers, none of whom can have a significant impact on price or supply.

1. The products would be homogeneous and there would be full knowledge of the market and smooth entry into the market.
2. The closest example to perfect competition is the unregulated agricultural market.
3. Very few (if any) marketers work in a purely competitive environment.
4. Pure competition is conditionally one pole of the market structure, and monopoly is the opposite.
5. Most marketers work in a competitive environment that could roughly be placed somewhere between these two extremes.
6. The market of each enterprise with this type of competition is small, the demand is elastic. It is easy to enter this market.

Types of competition:

1. Functional competition- different products can satisfy the same need.
2. Species competition- better satisfies the need for a product with higher consumer qualities.
3. Interfirm competition- the advantage in the market is the one who better captured the attention of potential consumers. Success in the modern market is the enterprise that was able to provide a variety of assortment of manufactured goods and services offered, increase the value of consumer properties of products while slightly increasing the price of it, concentrating its efforts on creating new segments and new market niches.

There are also two main groups of competition methods: price, non-price.