Competition functions in a market economy. Competition and its role in a market economy

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:46

The role of competition in a market economy is difficult to overestimate. Thanks to this process, a particular industry develops, manufacturers improve the quality of their goods in order to attract the maximum number of buyers. Competition also has a positive effect on consumers. But with all the advantages, this process also has disadvantages. Competition forces weak start-up companies to leave the market, while strong ones, on the contrary, only strengthen their positions. In addition, there is instability. The functions of competition in a market economy are designed to improve the process and reduce the shortcomings.

What is competition?

Economic rivalry of commodity producers to attract the largest number of buyers, respectively, obtaining the maximum profit is called competition. Economics founder Adam Smith called competition the "invisible hand" of the market. He said that through this process, the desireproducers to maximize income also serves the benefit of society, as the product becomes better.

Like many other terms, competition can be viewed in both broad and narrow terms. In a broader sense, competition is understood as part of the market mechanism that regulates and ensures the interaction between participants in the economy. In a narrow sense, this process is presented as a rivalry between individual companies for a "place in the sun", a competition between firms in any industry. The functions of competition in a market economy determine the course of action and objectives to be met.

Perfect competition

Speaking more broadly, there are two main types of competition: perfect and imperfect. Perfect competition is not subdivided into models, which cannot be said about imperfect competition. At first glance, it is perfect competition that is the ideal situation in the market. Its essence is that all manufacturers produce the same product that meets certain requirements.

A manufacturer can only attract buyers with the help of promotional moves, but you cannot change the product itself. In reality, this kind of competition is very difficult to find. As an example, one can only cite the farms of farmers who grow the same vegetables and fruits.

Monopoly

This direction is the most widely represented in the world onthis moment. Monopoly is one of the models of imperfect competition. It is an abundance of small firms that produce goods and offer their services. The essence and functions of competition in a market economy are most widely represented in this form of this process. After all, in a monopoly, you can compete in almost all ways: change the price, product quality, advertise, create a new brand, etc.

There are many examples of such competition: it can be travel companies, beauty salons, and bookmakers. In every city there are various organizations that provide services or produce goods. These enterprises are representatives of the monopoly.

Oligopoly

This market has one distinctive feature: it should not operate more than ten manufacturers at the same time. The functions of competition in a market economy here are doomed to two outcomes: either they help companies agree on partnerships, or firms begin to outlive and crowd out each other.

The state in an oligopoly monitors the price level so that manufacturers do not become impudent and do not set high prices for goods that are much cheaper. All companies operating in this market are large and successful. It is almost impossible for new enterprises to take a place next to them. Examples include mobile operators and the chemical industry.

Pure monopoly

This market is different fromothers because there is only one manufacturer. The functions and place of competition in a market economy mean nothing in this case. If there is only one manufacturer, then he has no one to compete with, since he is a monopolist in one industry or another. The state must exercise control, since a monopoly firm can practically set its own rules. In most cases, under pure monopoly, there is no development of production. Often, the same product is produced for years, which is not improved. This leads to stagnation in the economy. Examples include water utilities and gas companies.

Competition functions

To begin with, it is necessary to highlight the general functions of competition in a market economy briefly. Then all this will be disassembled in more detail. So, firstly, this process should ensure the efficient use of factors of production. In other words, it should help to adapt modern production to new conditions.

Secondly, competition should help ensure that the main goal of any entrepreneur - maximizing profits - is combined with the development of technological progress. Thirdly, competition provides freedom of activity. It offers an alternative for absolutely any activity.

Control function

Now about each in more detail. Let's try to consider all the functions of competition in a market economy with examples. The market is based on the balance of supply and demand. Regulatorythe function helps to identify the volume of production that will satisfy the needs of the buyer.

To determine this, you need to draw a graph that will reflect the demand and quantity of output. There is a balance point on the graph that reflects the right amount of goods. For example, a company is engaged in dairy products. On the day she produces 50 packs of milk and 20 cans of sour cream. If the company starts to produce 10 packages less milk, there will be a shortage. And if by 10 more, then there will be a surplus. Both have a negative impact on production, so this feature is very important.

Innovation

No less important in the modern world is the innovative function. At present, everything is changing very quickly, and the improvement of production, the acquisition of the latest equipment is becoming a necessity. However, not all firms are willing to spend huge sums of money on various innovations. Although thanks to them, working conditions improve, the quality of products increases. The experience of other companies shows that it is necessary to apply all the functions of competition in a market economy. Examples can be varied, but let's focus on one of them.

At the end of the 20th century, Nucor Steel, a steel casting company, was no different from its competitors. In 1986, the president of the company was able to obtain documents on the new technology. This development was unfinished, and its implementation required a huge amount of money, which the company did not have. However, the president took a risk, andnow Nucor Steel is an industrial giant that has outstripped all competitors and has become a leader in this industry.

Distribution function

Like all other functions of competition in a market economy, distribution is very important. In other words, it is motivation. According to statistics, half of the firms cease to exist a year after the appearance. 65% leave within three years. This indicates a lack of knowledge and a low level of motivation. A company that aims to win over customers will do everything possible to achieve this. This firm will apply in its activities all the functions of competition in a market economy.

The plan also plays an important role. Planning your activities is necessary, as it helps to clearly identify all stages of the company's development, and also determines the mission and purpose of the enterprise.

Control function

Control in a competitive environment should exist in the form of any bodies. In the markets of monopolies and oligopolies, there is such a body - the Antimonopoly Committee. Under conditions of pure monopoly, there is no controlling body, since there is no need for it. Many economists do not single out the function of control, since not a single manufacturer will set the price higher than others with a low-quality product, since this will lead to the loss of customers and, accordingly, the bankruptcy of the enterprise. It is necessary to work on mistakes and improve the product in order to break into the lead among similar firms.

Conclusion

Having considered all the functions of competition in the marketeconomy, we can conclude that all of them are extremely important, and without them not a single enterprise can exist. The given examples fully reflect the significance of each of the functions. Every company needs to work on its mistakes, but not necessarily on its own. The experience of other firms is invaluable, and before making any important decision, you should find out if there have been such cases in history and how they ended.

Now there is a World Wide Web, which is in the public domain, so this is very easy to do. Also, one should not forget about the literature that will help a novice entrepreneur to apply all the functions of competition in a market economy. The book of A. S. Eliseev "Economics", among other things, is an excellent start for studying the principles of economics.