Competition is the rivalry between participants in a market economy. Types and functions of competition

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

Competition is a concept inherent in a market economy. Each participant in financial and trade relations strives to take the best place in the environment where he has to function. This is the reason why there is competition. The struggle between the subjects of market relations can be conducted according to different rules. This determines the type of competition. The features of such rivalry will be discussed in the article.

General definition

Competition is a rivalry between market participants, which is a necessary tool on the way to movement and development. This is one of the most important economic categories. The term means "competition" or "collision" in Latin.

There are three main views on the interpretation of this concept. From the point of view of behavioral theory, competition is the struggle of interdependent sellers. They seek to gain control of the entire market ina certain industry. Neoclassicism somewhat clarified this definition. Adherents of this movement viewed competition as a struggle between mutually dependent sellers for the acquisition of limited economic goods, consumer money.

Structural theory considers competition in terms of the ability or inability of a player in the market to influence the price level. Based on such judgments, several market models are developed. Adherents of this theory distinguish between rivalry and competition.

The third interpretation of producer competition is given by functional theory. According to this view, the struggle is between the old and the new. Entrepreneurs create and destroy at the same time.

If we consider the concept in its most general form, competition is an economic category. It expresses the connection and interaction of economic subjects of the market, which at the same time are fighting for the acquisition of limited resources, benefits. Ultimately, all participants in trade relations try to take a privileged position in a certain type of activity. This ensures the survival of entrepreneurs in the market.

Functions

Competition in the economy is seen as the driving force of progress and development, improving the technical characteristics of products. It is an essential element of a harmoniously functioning system. The economy, as a result of such rivalry, produces only those products that the buyer needs at the moment. Manufacturers are looking for the most effective technologies, investing in new scientific developments in order to improve theirgoods, make it the required level of quality.

There are several basic functions of competition. The first of these is regulation. In order to take the best position in the industry, the manufacturer manufactures those products that, in his opinion, based on the research, will be in demand. Therefore, only promising, important market segments are developing.

Another function of competition is motivation. This is a chance and a risk for a product manufacturer at the same time. To get high profits, the company must produce high-quality products at minimal production costs. If he violated the wishes of customers, then he suffers losses. Buyers will choose another item. This motivates entrepreneurs to produce quality products that will be sold at an affordable cost.

Competition also performs the function of control. It limits, defines the framework for the economic development of each company. This does not allow one enterprise to control the price in the market at its own discretion. In this case, the seller will be able to choose products that were produced by several companies. The more perfect the market rivalry, the fairer the pricing will be.

Competition Policy

Studying the concept of competition, you need to understand not only the main ways of its impact on the market, but also the mechanism for managing relationships between all participants. To do this, the state pursues a balanced policy that has several goals. First of all, it is carried outstimulation of technical progress. The state motivates manufacturers to manufacture products using innovative technologies.

The concept of competition should be seen as a struggle at a particular point in time. Manufacturers must respond quickly to all changes that occur in their environment. Therefore, the policy of the state is aimed at the dissemination of information on the market, its availability. All players must quickly respond to a production breakthrough, innovations of one of the participants in market relations. This allows you to develop a particular industry faster.

States are not interested in developing a monopoly in the market. In this case, its development becomes limited, inharmonious. Therefore, an antimonopoly policy is being carried out, subsidies and benefits are allocated for the development of small and medium-sized businesses. A major player who is a monopolist is subject to laws established at the legislative level.

There is a possibility that major players in a certain industry will begin to negotiate, evading the risk, prerequisites for the existence of competition. In this case, the development will also be inharmonious. Customers will suffer from this, and development, quality improvement and innovation will not be characteristic of such a system. Therefore, the state pursues a policy in the field of preventing collusion of enterprises on prices. Regulations are issued that establish competition rules for a particular industry.

Competition Policy Guarantees

Legislationeach country establishes rules for conducting competition. The regulatory framework is adjusted to the conditions that have developed within each particular state. This allows you to manage development, create conditions for the harmonious growth of individual industries and the national economy as a whole.

In the Russian Federation, the main normative act that regulates the relations of all market participants is the Law "On Protection of Competition", which was adopted on July 26, 2006. This document contributes to the establishment of high-quality competition in the domestic market, the protection of rights and the definition of obligations all participants in trade relations.

The Law "On Protection of Competition" allows you to create conditions that provide an opportunity for different companies, regardless of their size, to carry out their activities. They can easily enter the market, occupy a free niche.

The law stipulates that the focus of competition must remain on the price and quality of products that are brought to the market. Each service offered by participants in trade relations must be commensurate with the real cost and other conditions established in the domestic market of the country.

The law protects the rights of trademarks, product brands. This allows the buyer to get quick access to information about the origin of a particular product. Based on such data, consumers can judge the quality of products, their technical characteristics.

The influence of competition on the development of the national economy and society can hardly be overestimated. Therefore, the policy of the state establishes the appropriate conditions for the proper development of each industry. Limited patent protection, registration of industrial designs. Patents are granted by rock up to 20 years.

Varieties

There are different kinds of competition. They are classified on the basis of the point of view from which the relationship of all participants in the trading process is considered. According to the consequences that competition has on the economy as a whole, they distinguish between creative and destructive rivalry between producers. It is creative competition that is predominantly considered in economic theory.

Distinguish types of competition according to the composition of the participants involved in the rivalry.

• Intra-industry competition. Participants are enterprises of the same industry. This allows you to form the cost of production.
• Inter-industry competition. The struggle is between subjects of different industries. This rivalry allows you to set the average profit.

Competition may differ in the way it is fought. Distinguish between price and non-price competition. In the first case, in order to attract customers, companies manage the cost of the product (more often they reduce it, but sometimes they raise it). With the deepening of producers in such methods of struggle between them, a real war can arise. This kind of competition is destructive.

Non-price competition allows participants to gain a privileged position in the market by making a unique product. It differs in appearance or internal content. It can also be a service, additional services that the manufacturer provides to the buyer, and advertising.

Perfect (pure) competition

Depending on how manufacturers influence the establishment of prices in the market, there are imperfect and perfect competition. In the second case, a situation is established in the industry in which no enterprise can influence the total cost of production. It is formed exclusively according to the laws of supply, demand, as well as the real cost.

Unlike perfect competition, imperfect rivalry becomes unfair. Some producers, taking advantage of their predominance in this market, begin to dictate their own terms when setting prices. This impact may be significant or small. This limits the freedom of entrepreneurial activity, sets limits and restrictions for other players.

Imperfect competition

Imperfect competition includes such forms of market existence as oligopoly, monopoly, monopolistic competition, monopsony, oligopsony and other similar varieties. The more power is concentrated in the hands of one manufacturer, the stronger the monopoly in this industry.

For perfect competition to take place in the market, a large number of small players are required. At the same time, the share of each of the participants in the market should not exceed 1%. All products offered by manufacturers mustbe uniform and standard. Also, a condition for perfect type competition is the presence of many buyers, each of whom can purchase a small amount of goods. All participants in trade relations have access to information on the average price in the industry. There are no barriers or restrictions to enter the market.

Monopolistic competition

Perfect or pure competition is today considered as an abstraction that allows us to understand the mechanisms in the market. However, in developed countries, in most cases, monopolistic competition is established. This is quite normal. It is controlled by the state.

Considering the forms of competition, it is the monopolistic struggle of many manufacturers that needs to be paid attention to. There are many sellers and buyers in the market. Transactions in this case are concluded in a wide range. They may differ significantly from the established average level. This is due to the ability of firms to offer goods of different quality. However, such differences should not be significant. Most often, these are methods of non-price competition. However, buyers are willing to pay more for this difference. All market participants have a low ability to form a price, because there are a lot of them.

Such competition may occur in an industry characterized by complex technologies (eg, engineering, energy, communications, etc.). So the company can develop a new product, which has no analogues yet. He makes super profits, but later enters the marketseveral players who managed to master such an innovation. They get roughly equal opportunities. This prevents an individual company from dictating the price of a product.

Oligopoly

There are forms of competition in which the number of players in the market is limited. This is an oligopoly. Participants cannot significantly influence the price setting. If one of the players reduces the cost of their product, the other participants will either have to reduce their product as well, or offer more additional services.

In such a market, participants can not count on a long-term priority position when prices decrease. Entering this market is difficult. There are significant barriers that prevent small and medium-sized businesses from entering here. Often an oligopoly is established in the steel, natural, mineral resources, computer technology, mechanical engineering, etc. markets.

Unfair competition may be established in such a market. Since there are few participants in the market, they can agree among themselves and unreasonably raise prices for goods. Such actions are controlled by the state. Unfair competition leads to devastating consequences for the economy. It does not contribute to development, scientific progress. Producer collusion leads to unfair pricing. Demand for products is falling.

Monopoly

Competition in the economy can take many forms. Sometimes a pure monopoly is established in the market. In this case, most of the products are supplied by only one company. At the same time, market entry for othersplayers is not only limited, but almost impossible.

A monopolist whose activities are not controlled by the state can set prices and influence their formation. At the same time, it should be taken into account that the monopolist rarely sets the highest possible price. Most often this is due to the reluctance of the company to attract other firms into the industry. Also, setting low prices by a monopoly company may pursue the goal of completely conquering the market. Even small firms will be squeezed out.

Having considered the varieties and features of the formation of trade relations in the market, we can say that competition is the force that determines the development of the industry. With the establishment of harmonious relations of all participants, it is possible to achieve the development of the entire economy. If the influence of enterprises is not properly distributed, competition can be destructive.