Perfect and imperfect competition: essence, characteristics, main models

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

Perfect and imperfect competition, their forms, models, distinguishing features have been haunting the minds of the world's leading economists for several centuries.

Competition, as you know, is the most important feature of a market economy. It is a process of interaction between sellers and buyers, in which the latter have unlimited freedom of choice, while each of the sellers must prove to him that his option is the most acceptable.

competition.

The thing is that for a long time the apologists of the so-called free market argued that it was he who could solve all the economic problems of this or that society, determine the vector of development of the state. The core feature of such an economic model, they saw purecompetition in which the largest possible number of companies and individuals would be engaged in the production of a particular product, and the contribution of each of them to the total volume of production would be so insignificant that none of them alone could have a decisive influence on price formation.

In addition to the above, the characteristics of a perfectly competitive market implied the absence of any significant costs for advertising and promotion of goods to other markets. All competition between commodity producers had to be conducted exclusively on the level of price and quality of goods. Any company at any time had the opportunity to leave the market without any consequences for themselves.

However, as history has shown, a clean market turned out to be more of an illusion than reality. Talk about the fact that perfect and imperfect competition are equally inherent in any market, and the predominance of one form or another depends on the level of economic development of society, turned out to be nothing more than good wishes. Imperfect competition, as it turned out, played and is playing a more significant role in the life of mankind.

The following models of imperfect competition are currently known:

1. Competition between large monopoly firms. This model is typical for the global economic space, when this or that sector was divided between large companies, each of which has all the opportunities,to become a sole seller in a particular country. It is this model that is best suited to understand the dilemma of "perfect and imperfect competition". At the same time, if we take the entire world market as a whole, then here not a single manufacturer has decisive levers that could influence pricing. A typical example is the sportswear and equipment market.

2. Oligopoly. This model assumes that the market for certain goods or services is divided among a small number of large companies, which, most likely, are in collusion with each other. As for prices in an oligopoly, companies agree on system-forming concepts, while the cost of non-core goods may be different. An example is the market for the production of non-ferrous metals.

3. Pure monopoly, when there is one player in this market, which determines both the price, the quality, and the range of goods and services. No other companies are allowed in this economic space, the manufacturer practically does not need advertising. An example is OAO Gazprom.