The market economy is a complex and dynamic system, with many connections between sellers, buyers and other participants business relations. Therefore, markets by definition cannot be homogeneous. They differ in a number of parameters: the number and size of firms operating in the market, the degree of their influence on the price, the type of goods offered, and much more. These characteristics determine types of market structures or otherwise market models. Today it is customary to distinguish four main types of market structures: pure or perfect competition, monopolistic competition, oligopoly and pure (absolute) monopoly. Let's look at them in more detail.

Concept and types of market structures

Market structure– a combination of characteristic industry characteristics of market organization. Each type of market structure has a number of characteristic features that affect how the price level is formed, how sellers interact in the market, etc. In addition, types of market structures have varying degrees of competition.

Key characteristics of types of market structures:

• number of sellers in the industry;
• firm size;
• number of buyers in the industry;
• type of product;
• barriers to entry into the industry;
• availability of market information (price level, demand);
• the ability of an individual firm to influence the market price.

The most important characteristic of the type of market structure is level of competition, that is, the ability of an individual selling company to influence the overall market conditions. The more competitive the market, the lower this opportunity. Competition itself can be both price (price changes) and non-price (changes in the quality of goods, design, service, advertising).

You can select 4 Main Types of Market Structures or market models, which are presented below in descending order of level of competition:

• perfect (pure) competition;
• monopolistic competition;
• oligopoly;
• pure (absolute) monopoly.

Table with comparative analysis The main types of market structure are shown below.

Table of main types of market structures

Perfect (pure, free) competition

Perfectly competitive market (English "perfect competition") – characterized by the presence of many sellers offering a homogeneous product, with free pricing.

That is, there are many companies on the market offering homogeneous products, and each selling company, by itself, cannot influence the market price of these products.

In practice, and even on a global scale national economy, perfect competition is extremely rare. In the 19th century it was typical for developed countries, but in our time only agricultural markets, stock exchanges or the international currency market (Forex) can be classified as perfectly competitive markets (and then with a reservation). In such markets, fairly homogeneous goods are sold and bought (currency, stocks, bonds, grain), and there are a lot of sellers.

Features or conditions of perfect competition:

• number of selling companies in the industry: large;
• size of selling companies: small;
• product: homogeneous, standard;
• price control: absent;
• barriers to entry into the industry: practically absent;
• methods of competition: only non-price competition.

Monopolistic competition

Market of monopolistic competition (English "monopolistic competition") – characterized big amount sellers offering a variety of (differentiated) products.

In conditions of monopolistic competition, entry into the market is fairly free; there are barriers, but they are relatively easy to overcome. For example, in order to enter the market, a company may need to obtain a special license, patent, etc. The control of selling firms over firms is limited. Demand for goods is highly elastic.

An example of monopolistic competition is the cosmetics market. For example, if consumers prefer Avon cosmetics, they are willing to pay more for them than for similar cosmetics from other companies. But if the price difference is too large, consumers will still switch to cheaper analogues, for example, Oriflame.

Monopolistic competition includes food and light industry markets, medicines, clothes, shoes, perfumes. Products in such markets are differentiated - the same product (for example, a multicooker) different sellers(manufacturers) may have many differences. Differences can manifest themselves not only in quality (reliability, design, number of functions, etc.), but also in service: availability warranty repair, free shipping, technical support, payment by installments.

Features or features of monopolistic competition:

• number of sellers in the industry: large;
• firm size: small or medium;
• number of buyers: large;
• product: differentiated;
• price control: limited;
• access to market information: free;
• barriers to entry into the industry: low;
• methods of competition: mainly non-price competition, and limited price competition.

Oligopoly

Oligopoly market (English "oligopoly") - characterized by the presence on the market of a small number of large sellers, whose goods can be either homogeneous or differentiated.

Entry into an oligopolistic market is difficult and entry barriers are very high. Individual companies have limited control over prices. Examples of oligopoly include the automobile market, markets cellular communications, household appliances, metals.

The peculiarity of oligopoly is that the decisions of companies on prices for goods and the volume of its supply are interdependent. The market situation strongly depends on how companies react when one of the market participants changes the price of their products. Possible two types of reaction: 1) follow reaction– other oligopolists agree with the new price and set prices for their goods at the same level (follow the initiator of the price change); 2) reaction of ignoring– other oligopolists ignore price changes by the initiating firm and maintain the same price level for their products. Thus, an oligopoly market is characterized by a broken demand curve.

Features or oligopoly conditions:

• number of sellers in the industry: small;
• firm size: large;
• number of buyers: large;
• product: homogeneous or differentiated;
• price control: significant;
• access to market information: difficult;
• barriers to entry into the industry: high;
• methods of competition: non-price competition, very limited price competition.

Pure (absolute) monopoly

Pure monopoly market (English "monopoly") – characterized by the presence on the market of one single seller of a unique (without close substitutes) product.

Absolute or pure monopoly is the exact opposite of perfect competition. A monopoly is a market with one seller. There is no competition. The monopolist has full market power: it sets and controls prices, decides what volume of goods to offer to the market. In a monopoly, the industry is essentially represented by just one firm. Barriers to entry into the market (both artificial and natural) are almost insurmountable.

The legislation of many countries (including Russia) combats monopolistic activities and unfair competition (collusion between firms in setting prices).

A pure monopoly, especially on a national scale, is a very, very rare phenomenon. Examples include small settlements (villages, towns, small cities), where there is only one store, one owner of public transport, one railway, one airport. Or a natural monopoly.

Special varieties or types of monopoly:

• natural monopoly– a product in an industry can be produced by one firm at lower costs than if many firms were involved in its production (example: public utilities);
• monopsony– there is only one buyer in the market (monopoly on the demand side);
• bilateral monopoly– one seller, one buyer;
• duopoly– there are two independent sellers in the industry (this market model was first proposed by A.O. Cournot).

Features or monopoly conditions:

• number of sellers in the industry: one (or two, if we are talking about a duopoly);
• firm size: variable (usually large);
• number of buyers: different (there can be either many or a single buyer in the case of a bilateral monopoly);
• product: unique (has no substitutes);
• price control: complete;
• access to market information: blocked;
• Barriers to entry into the industry: almost insurmountable;
• methods of competition: absent as unnecessary (the only thing is that the company can work on quality to maintain its image).

Galyautdinov R.R.

© Copying of material is permissible only if a direct hyperlink to

Bookmarked: 0

What is pure competition? Description and definition of the concept.

Pure competition- these are prosperous conditions in the market, when there are many buyers and many sellers, and there is a complete absence of monopoly.
When there is no barrier to entry or exit from the market, information about the quality and price of the product is available to all market participants.

A large number of consumers and the abundance of goods cannot influence the price and quantity of products. Both the seller and the consumer depend on market dynamics.

To have more high profits from the sale of products or goods - this is to use some advanced technologies, both in the manufacture of products and in their sale, which will cause a decrease in costs, and hence an increase in profits.

Pure, perfect, free competition is an idealized state of the market, an economic model when individual sellers and buyers cannot influence the price, but form it through their contribution of supply and demand. That is, this is a type of market structure where the market behavior of buyers and sellers consists of adaptation to the equilibrium state of market conditions.

Let us consider in more detail what pure competition means.

Distinctive features of pure competition

Signs of perfect competition:

• divisibility and homogeneity of products sold. It is understood that sellers or manufacturers produce a product that can be completely replaced by the products of other market participants;
• an infinite number of equal buyers and sellers. That is, the entire demand that exists on the market must be covered not by one or several enterprises, as in the case of a monopoly and oligopoly;
• high mobility of production factors. Neither the state nor specific sellers or manufacturers should influence pricing. The price of a product should be determined by the cost of production, the level of demand, as well as supply;
• absence of barriers to exit or entry into the market. Examples could be a variety of small business areas where special requirements have not been created and special licenses or other permits are not needed. These include: studio, shoe repair shop and similar establishments;
• full and equal access of all participants to information (about the price of goods).

In a situation where at least one sign is missing, competition is imperfect. In a situation where these features are artificially removed to achieve a monopoly position in the market, the situation is called unfair competition.

One of the widely used types unfair competition in some countries it is giving implicit and explicit bribes to various government representatives in exchange for various kinds of preferences.

David Ricardo identified a tendency, natural in conditions of absolute competition, towards a decrease in the economic profit of each seller.

The exchange market in a real economy is most similar to a market of perfect competition. Keynesians when observing phenomena economic crises came to the conclusion that this form of competition usually fails, from which it is possible to get out only with the help of external intervention.

Improving production, reducing production costs, automating all processes, optimizing the structure of enterprises - all this is an important condition for development modern business.

What best encourages businesses to take such action? exclusively and only the market. The market, in this understanding, represents competition that arises between enterprises that manufacture or sell similar products.

In case there is enough high level adequate competition, this seriously affects the quality of goods or services sold on the market.

Because every manufacturer wants to be the best, so he is interested in ensuring that his products are of the highest quality and the costs of their production are the lowest. This is a condition for existence in a competitive market.

Perfect competition in the market

Perfect competition, as mentioned above, is the absolute opposite of monopoly.

In other words, this is a market in which there is an unlimited number of sellers who sell the same or similar goods and cannot in any way influence its final cost.

The state, in turn, should not influence the market or engage in full regulation of it, since this can affect the number of sellers, as well as the volume of products on the market, which will immediately affect the cost per unit of product (good or service).

However, unfortunately, such ideal conditions for doing business in real market conditions cannot exist for long. That is, perfect competition is an unstable and temporary phenomenon. Ultimately the market becomes either an oligopoly or some other form of imperfect competition.

Perfect competition can lead to decline. This may be due to the fact that in the long term there is a constant decrease in price. The human resource in the world is quite large, while the technological one is very limited.

Over time, all enterprises will gradually undergo a process of modernization of all major production assets and all production processes, and the price will still continue to fall due to competitors' attempts to conquer a larger market.

And this will already lead to functioning on the verge of the break-even point or below it. The market can only be saved by outside influence.

Perfect competition is extremely rare. In the real world, it is impossible to give examples of perfectly competitive firms, since a market functioning in this way simply does not exist. Although there are some segments that are as close as possible to its conditions.

To find such examples, it is necessary to find those markets in which small businesses mainly operate. As already mentioned, if any company can enter the market where a given segment operates, and can easily exit it, then this is a sign of perfect competition.

If we talk about imperfect competition, monopoly markets are its clear representative. Enterprises that operate in such conditions have no incentive to develop and improve. In addition, they produce such goods and provide such services that cannot be replaced by any other products.

An entire sector of the economy can be called an example of such a market - the oil and gas industry, and the monopoly company is OJSC Gazprom. An example of a perfectly competitive market is the car repair industry. There are a lot of all kinds of service stations and auto repair shops, both in the city and in other populated areas.

Almost everywhere the same services are provided, and approximately the same amount of work is performed. If there is perfect competition in the market, then it becomes impossible to artificially increase prices for goods in the legal field. We see examples of this in everyday life, in ordinary markets.

For example, one fruit seller raised the price of apples by 10 rubles, although their quality is the same as that of competitors, in this case buyers will not buy goods from him at that price. If the monopolist has influence on the price, increasing it or decreasing it, then in this case such methods are not suitable.

With perfect competition, you cannot independently increase the price, unlike a monopolist enterprise. Due to competition in the market, you cannot simply increase the price, since all customers will be looking for more bargain purchase goods. Thus, an enterprise may lose its market share, and this will entail catastrophic consequences.

Some people reduce the price of the goods offered. This is done in order to “win” new market shares and increase income levels. To reduce prices, it is necessary to reduce the cost of raw materials.

And this, in turn, is possible thanks to the use of new technologies, production optimization and other processes, which allow saving costs on raw materials. In Russia, markets that are close to perfect competition are not developing fast enough.

Examples of perfect economics can be found in almost all areas of small business. If we talk about the domestic market, we can see that a perfect economy is developing at an average pace, but it could do better.

Weak support from the state significantly hampers its development, since so far many laws are focused on supporting large manufacturers, which in turn are monopolists.

Therefore, the small business sector remains without special attention and without proper funding.

Perfect competition, examples of which are listed above, is the ideal form of competition by understanding the criteria of pricing, demand and supply. In our time, not a single country, not a single economy in the world, can boast of a market that would meet absolutely all the requirements that a market must meet under perfect competition.

We briefly examined what pure competition is, its distinctive features, as well as examples in the global market. Leave your comments or additions to the material.

Competition(lat. concurrentia, from lat. concurro - running, colliding) - struggle, rivalry in any area. In economics, this is the struggle between economic entities for the maximum efficient use factors of production.

Competitiveness- the ability of a certain object or subject to outperform competitors in given conditions.

The lower a firm's ability to influence the market, the more competitive the industry is considered to be. In the extreme case, when the degree of influence of one firm is zero, we speak of a perfectly competitive market.

In scientific language there are two different understandings of the term “competition”. Competition as a characteristic of the market structure (market competitiveness, perfect, monopolistic competition) and competition as a way of interaction between firms in the market (competitive struggle, price and non-price competition).

Terms used to refer to various types market structures, come from the Greek language and characterize, on the one hand, the belonging of economic entities to sellers or buyers (poleo - sell, psoneo - buy), and on the other, their number (mono - one, oligos - several, poly - many) .

Since the structure of a particular market is determined by many factors, the number of market structures is practically unlimited.

To simplify the analysis in economic theory, it is customary to distinguish four basic models:

• perfect competition;
• pure monopoly;
• monopolistic competition;
• homogeneous and heterogeneous oligopoly

Perfect competition

Perfect competition is a market condition in which there are a large number of buyers and sellers (producers), each of whom occupies a relatively small market share and cannot dictate the terms of sale and purchase of goods.

It is assumed that there is necessary and accessible information about prices, their dynamics, sellers and buyers, not only in a given place, but also in other regions and cities.

A perfectly competitive market presupposes the absence of producer power over the market and the setting of prices not by the producer, but through the function of supply and demand.

The features of perfect competition are not fully inherent in any industry. All of them can only come close to the model.

The signs of an ideal market (market of ideal competition) are:

1. the absence of entry and exit barriers in a particular industry;
2. no restrictions on the number of market participants;
3. homogeneity of products of the same name presented on the market;
4. free prices;
5. absence of pressure, coercion on the part of some participants in relation to others

Creating an ideal model of perfect competition is an extremely complex process. An example of an industry close to a perfectly competitive market is Agriculture.

Imperfect competition

Imperfect competition is competition in conditions where individual producers have the ability to control the prices of the products they produce. Perfect competition is not always possible in the market. Monopolistic competition, oligopoly and monopoly are forms of imperfect competition. In a monopoly, the monopolist may force other firms out of the market.

Signs of imperfect competition are:

1. dumping prices
2. creating entry barriers to the market for any goods
3. price discrimination (selling the same product at different prices)
4. use or disclosure of confidential scientific, technical, production and trade information
5. dissemination of false information in advertising or other information regarding the method and place of manufacture or quantity of goods
6. withholding information important to the consumer

Losses from imperfect competition:

1. unjustified price increases
2. increase in production and distribution costs
3. slowdown in scientific and technological progress
4. decreased competitiveness in world markets
5. decline in economic efficiency.

Monopoly

Monopoly is the exclusive right to something. In relation to economics - the exclusive right to production, purchase, sale, owned by one person, a certain group of persons or the state.

It arises on the basis of high concentration and centralization of capital and production. The goal is to extract extremely high profits. This is achieved through the establishment of monopolistically high or monopolistically low prices.

Suppresses the competitive potential of a market economy, leading to rising prices and imbalances.

Monopoly model:

• sole seller;
• lack of close substitute products;
• dictated price.

It is necessary to distinguish between natural monopoly, that is, structures the demonopolization of which is either inappropriate or impossible: public utilities, metro, energy, water supply, etc.

Monopolistic competition

Monopolistic competition occurs when many sellers compete to sell a differentiated product in a market where new sellers may enter.

A market with monopolistic competition is characterized by the following:

1. the product of each firm trading on the market is an imperfect substitute for the product sold by other firms;
2. there are a relatively large number of sellers in the market, each of whom satisfies a small but not microscopic share market demand on the general type of product sold by the firm and its competitors;
3. sellers on the market do not take into account the reaction of their rivals when choosing what price to set for their goods or when choosing guidelines for annual sales;
4. the market has conditions for entry and exit

Monopolistic competition is similar to a monopoly situation because individual firms have the ability to control the price of their goods. It is also similar to perfect competition because each product is sold by many firms and there is free entry and exit in the market.

Oligopoly

Oligopoly is a type of market in which each sector of the economy is dominated by not one, but several firms. In other words, in an oligopolistic industry there are more producers than in a monopoly, but significantly fewer than in perfect competition.

As a rule, there are 3 or more participants. A special case of oligopoly is duopoly. Price control is very high, there are high barriers to entry into the industry, and significant non-price competition. Examples include cell phone operators and the housing market.

Antimonopoly policy

In all developed countries of the world there is antimonopoly legislation that restricts the activities of monopolies and their associations.

Antimonopoly policy in European countries is largely aimed at regulating already established monopolies, regardless of the ways in which they achieved their monopoly position, and this regulation does not imply structural changes, that is, it does not contain requirements for deconcentration or fragmentation of firms into independent enterprises.

For the US government antimonopoly policy, first of all, and of course, it is characterized by such a position, according to which it is not at all necessary to deprive a company of monopoly high profits if it has achieved a monopoly position in the market “thanks to higher business qualities, ingenuity or just a happy occasion.”

In addition to price regulation, reforming the structure of natural monopolies can also bring certain benefits - especially in Russia.

The fact is that in Russia, within the framework of a single corporation, both the production of natural monopoly goods and the production of goods that are more efficiently produced in competitive conditions are often combined.

This association is, as a rule, of the nature of vertical integration. As a result, a giant monopolist is formed, representing an entire sphere of the national economy.

In general, the system of antimonopoly regulation in Russia is still in its infancy and requires radical improvement. In Russia, the antimonopoly regulatory body is the Federal Antimonopoly Service of Russia.

Objects that are competitive can be divided into four groups:

• goods,
• enterprises (as producers of goods),
• industry (as a collection of enterprises offering goods or services),
• regions (districts, regions, countries or groups thereof).

In this regard, it is customary to talk about such types as:

• National competitiveness
• Product competitiveness
• Enterprise competitiveness

In addition, we can fundamentally distinguish four types of subjects who evaluate the competitiveness of certain objects:

• consumers,
• manufacturers,
• investors,
• state.

source
source 2
source 3

Perfect and imperfect competition: essence and characteristics

Evgeniy Malyar

# Business Dictionary

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
• Perfectly competitive 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 everyday level. Every day, when choosing a particular product in a store, every citizen, whether he wants it or not, participates in this process. What kind of competition is there, and, finally, what is it even from a scientific point of view?

Characteristics of perfect competition

To begin with, you should accept general definition competition. Regarding this objectively existing phenomenon that has accompanied economic relations since their inception, various concepts have been put forward, from the most enthusiastic to the 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 government intervention in the natural course of economic processes.

John Stuart Mill, being also a great liberal and supporter of the most individual economic freedom, was more careful in his judgments, comparing the competition to the sun. Probably, this outstanding scientist also understood that on a too hot day a little shade is also a good thing.

Any scientific concept involves the use of idealized tools. Mathematicians refer to this as a “line” that has no width or a dimensionless (infinitesimal) “point”. Economists have the concept of perfect competition.

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

As in any other science, economic theory adopts a certain ideal model of the market, which does not fully correspond to reality, but allows one to study the processes taking place.

Signs of perfect competition

The description of any hypothetical phenomenon requires criteria to which a real object should (or can) strive. For example, doctors consider a healthy person with a body temperature of 36.6° and a blood pressure of 80 over 120. Economists, listing the features of perfect competition (also called pure) 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. Every entrepreneur, receiving certain opportunities to assert his position in the market, will definitely take advantage of them. And yet, 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 unlimited exists within the boundaries of 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 homogeneity and divisibility. Also a purely theoretical assumption. An abstract product is something like grain, but it also comes in different qualities.
• Complete freedom for participants to enter or leave the market. In practice, this is sometimes observed, but by no means always.
• Possibility of hassle-free movement production factors. Of course, it is possible to imagine, for example, an automobile plant that can easily be moved to another continent, but this will require imagination.
• The price of a product is formed solely by the relationship between supply and demand, without the possibility of influence from other factors.
• And finally, complete public availability of information on prices, costs and other information, in real life most often constituting a trade secret. There are no comments at all here.

After considering the above features, the following conclusions arise:

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

Conditions close to perfect competition

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

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 clearly illustrated by a graph in which all three lines converge:

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

Q – production volume.

Advantages and disadvantages of perfect competition

Since perfect competition does not exist as an ideal phenomenon in economics, its properties can only be judged by individual characteristics, which manifest themselves in some cases in real life (with the maximum possible approximation). Speculative reasoning will also help 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 increase the price.

The means to achieve advantages in this case can be new cost-effective technologies, highly organized labor processes and all-out frugality.

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 control by the state is weak for some reason.

An illustration of the predatory attitude towards resources can be seen in 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.

• Firstly, 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 virtually the same thing and at approximately the same price.
• Thirdly, endlessly a large number of producers causes 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 company in the conditions pure competition, as well as the consumer, would be very far from ideal.

Perfectly competitive market

Closest to the idealized model on modern stage is considered an exchange type of market. Its participants do not have bulky and inert assets, they easily enter and leave business, their product is relatively homogeneous (evaluated by quotes).

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

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

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's hard to imagine that great amount sellers offer absolutely the same type of product, which is in demand among an unlimited number of buyers. This is an ideal picture, suitable only for conceptual reasoning.

In real life competition is always imperfect. In this case, only one is observed common feature markets of perfect and monopolistic competition (the most widespread) and it consists in the competitive nature of the phenomenon.

There is no doubt that business entities strive to achieve advantages, take advantage of them and develop success until they fully master all possible sales volumes.

In all other respects, perfect competition and monopoly are significantly different.

Signs of imperfect competition

Since the ideal model of “capitalist competition” is discussed above, it remains to analyze its discrepancies with what happens in the conditions of a functioning world market. The main signs of real competition include the following points:

1. The number of manufacturers is limited.
2. Barriers, natural monopolies, fiscal and licensing restrictions objectively exist.
3. Entering the market can be difficult. Exit too.
4. Products are produced that vary in quality, price, consumer properties and other characteristics. However, they are not always divisible. 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 capacity themselves are very expensive.
6. Individual participants have the opportunity to influence the market price of a product, including through non-economic methods.
7. Information about technologies and pricing is not open.

From this list it is clear that the actual conditions modern market are not just 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 simply divided them according to the principle of functioning into three categories: monopoly, oligopoly and monopolistic, but now two more concepts have been introduced - oligopsony and monopsony.

These models and types of imperfect competition deserve detailed consideration.

Monopsony

This type of imperfect competition occurs when the product produced can only be purchased by one consumer.

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

This is a kind of dictate from a single buyer (and not the manufacturer), and it does not occur often.

A phenomenon is also emerging in the labor market. When there is only one, for example, factory in a city, then ordinary person opportunities to sell your labor are limited.

Oligopsony

It is very similar to a monopsony, but there is a choice of buyers, although 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 is that a tire manufacturer seeks to interest one of the car factories for 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. Surely no one is surprised that physicists use various mathematical models and scientific assumptions?

Imperfect competition comes in a variety of forms, and it is possible that new types will be added to the existing ones in the future.

Perfect competition

Competition is a basic concept of economics. It refers to the rivalry of subjects (companies, organizations, firms or individuals) in any segment of the economy in order to capture the market and make a profit.

Economists distinguish two types of competition:

Perfect
Imperfect (monopoly, oligopoly and absolute monopoly).

The article discusses perfect competition in detail.

Definition of perfect competition

Perfect (pure) competition is a market model in which many sellers and buyers interact. At the same time, all subjects of market relations have equal rights and opportunities.

Let's imagine that there is a market for rye flour. Sellers (5 firms) and buyers interact on it. The rye flour market is structured in such a way that a new participant offering its products can easily enter it. In this market model there is perfect (pure) competition.

A distinctive feature of a pure competition market is that the buyer and seller cannot influence the price of the product. The price of a product is determined by the market.

Necessary conditions for perfect competition

In order for the same product to have the same price from different sellers in the same period of time, the following conditions must be met:

1. Market homogeneity;2. Unlimited number of sellers and buyers of the product;3.

No monopoly (one influential manufacturer capturing the lion's share of the market) and monopsony (the only buyer of the product);4.

Prices for goods are set by the market, not by the state or interested parties;5. Equal opportunities for conducting economic activities for all members of society;

6. Open information about the main economic indicators of all market players. It's about about demand, supply and prices for a product. In a purely competitive market, all indicators are considered fairly;

7. Mobile factors of production;

8. The impossibility of a situation arising when one market subject influences others through non-economic methods.

If the above conditions are met, perfect competition is established in the market. Another thing is that in practice this does not happen. Let's look at why next.

Pure competition - abstraction or reality?

In real life, there is no such thing as perfect competition. Any market consists of living people who pursue their interests and have leverage over the process. There are three main barriers that prevent a new company from simply entering the market:

Economic. Trade marks, brands, patents and licenses. Organizations that have been on the market for a long time necessarily patent their product.

This is done so that new firms cannot simply copy the product and start successful trading; Bureaucratic. With any number of approximately equal producers, a dominant firm always stands out.

It is she who has power in the market and sets the price of the product;

Mergers and acquisitions. Large enterprises buying up new, developing companies. This is done to introduce new technologies and expand the range of the enterprise under one brand. Effective method competition with successful newcomers.

Economic and bureaucratic obstacles significantly increase the costs for newcomers to enter the market. Company leaders ask themselves questions:

1. Will revenues from product sales cover the costs of promotion and development?
2. Will my business be profitable?

The purpose of entry barriers is to prevent new businesses from gaining a foothold in the market. Theoretically, any enterprise can become a new monopolist. Such cases have occurred in history. Another thing is that in percentage terms it will be 1-2% of 100% of new enterprises.

Markets close to pure competition

If pure competition is an abstraction, then why is it needed? An economic model is needed to study the laws of the market and more complex types of competition. In economics, perfect competition plays a very important role:

1. Some markets experience almost perfect competition. This includes agriculture, securities And precious metals. Knowing the model of perfect competition, it is quite easy to predict the fate of a new company.
2. Pure competition is a simple economic model. It allows comparison with other types of competition.

Perfect competition, like other types of rivalry between economic entities, is an integral part of market relations.

Perfect competition. Examples of perfect competition

Improving production, reducing production costs, automating all processes, optimizing the structure of enterprises - all this is an important condition for the development of modern business. What's the best way to get businesses to do all this? Only the market.

The market refers to the competition that arises between enterprises that produce or sell similar products. If there is a high level of healthy competition, then to exist in such a market it is necessary to constantly improve the quality of the product and reduce the level of overall costs.

The concept of perfect competition

Perfect competition, examples of which are given in the article, is the exact opposite of monopoly. That is, this is a market in which there is an unlimited number of sellers who deal in the same or similar goods and at the same time cannot influence its price.

At the same time, the state should not influence the market or engage in its full regulation, since this can affect the number of sellers, as well as the volume of products on the market, which is immediately reflected in the price per unit of goods.

Despite the seemingly ideal conditions for doing business, many experts are inclined to believe that, in real conditions, perfect competition will not be able to exist in the market for long. Examples that confirm their words have happened repeatedly in history. The end result was that the market became either an oligopoly or some other form of imperfect competition.

Perfect competition can lead to decline

This is due to the fact that in the long term there is a constant decrease in price. And if human resource in the world is big, but the technological one is very limited. And sooner or later, enterprises will move to the point where all fixed assets and everything will be modernized production processes, and the price will still fall due to competitors’ attempts to conquer a larger market.

And this will already lead to functioning on the verge of the break-even point or below it. The situation can only be saved by influence from outside the market.

Main features of perfect competition

We can distinguish the following features that a perfectly competitive market should have:

– a large number of sellers or manufacturers of products. That is, the entire demand that exists on the market must be covered not by one or several enterprises, as in the case of a monopoly and oligopoly;

– products on such a market must be either homogeneous or interchangeable. It is understood that sellers or manufacturers produce a product that can be completely replaced by the products of other market participants;

– prices are set only by the market and depend on supply and demand. Neither the state nor specific sellers or manufacturers should influence pricing. The price of a product should be determined by the cost of production, the level of demand, as well as supply;

– there should be no barriers to entry or exit into a perfectly competitive market. Examples can be very different from the field of small business, where special requirements have not been created and special licenses are not needed: atelier, shoe repair services, etc.;

– there should be no other external influences on the market.

Perfect competition is extremely rare

In the real world, it is impossible to give examples of perfectly competitive firms, since there is simply no market that functions according to such rules. There are segments that are as close as possible to its conditions.

To find such examples, it is necessary to find those markets in which small businesses mainly operate. If the market where it operates can be entered by any company and easily exited, then this is a sign of such competition.

Examples of perfect and imperfect competition

If we talk about imperfect competition, monopoly markets are its clear representative. Enterprises that operate in such conditions have no incentive to develop and improve.

In addition, they produce such goods and provide such services that cannot be replaced by any other product. This explains the poorly controlled price level, which is established through non-market means. An example of such a market is an entire sector of the economy - the oil and gas industry, and the monopoly company is OJSC Gazprom.

An example of a perfectly competitive market is the car repair industry. There are a lot of different service stations and auto repair shops both in the city and in other localities. The type and amount of work performed is almost the same everywhere.

It is impossible in the legal field to artificially increase prices for goods if there is perfect competition in the market. Everyone has seen examples confirming this statement more than once in their life on the regular market. If one vegetable seller raised the price of tomatoes by 10 rubles, despite the fact that their quality is the same as that of competitors, then buyers will stop buying from him.

If under a monopoly the monopolist can influence the price by increasing or decreasing supply, then in this case such methods are not suitable.

With perfect competition, you cannot independently increase the price, as a monopolist can do.

Due to the large number of competitors, it is impossible to simply increase the price, since all customers will simply switch to purchasing relevant goods from other enterprises. Thus, an enterprise may lose its market share, which will entail irreversible consequences.

In addition, in such markets there is a reduction in prices for goods by individual sellers. This occurs in an attempt to “win” new market shares to increase revenue levels.

And in order to reduce prices, it is necessary to spend less raw materials and other resources on the production of one unit of product. Such changes are possible only through the introduction of new technologies, production optimization and other processes that can reduce the level of costs of doing business.

In Russia, markets that are close to perfect competition are not developing fast enough

If we talk about the domestic market, perfect competition in Russia, examples of which are found in almost all areas of small business, is developing at an average pace, but it could be better.

The main problem is the weak support of the state, since so far many laws are aimed at supporting large manufacturers, who are often monopolists.

In the meantime, the small business sector remains without special attention and the necessary financing.

Perfect competition, examples of which are given above, is an ideal form of competition from the understanding of pricing criteria, supply and demand. Today, in no other economy in the world can one find a market that meets all the requirements that must be met under perfect competition.

No related posts.

It is characterized by a balance of supply and demand. Thanks to this, the market is regulated independently and the seller or buyer cannot influence most processes, in particular pricing.

With this model, competition between sellers reaches its peak. Due to the fact that market participants have virtually no influence on sales conditions, the economy is resistant to the emergence of negative processes such as unemployment and inflation.

Perfect competition has the following characteristics:

• a large number of buyers and sellers, including representatives of small and medium-sized businesses;
• sellers and manufacturers offer homogeneous goods;
• easy entry into the market even for small companies, no barriers from the state;
• high awareness of all market participants about the state of affairs in it, processes, subjects, etc., information can be obtained by everyone without problems and restrictions;
• sellers and buyers cannot influence the terms of trade and take them for granted;
• high mobility of resources.

If a model does not have at least one of these characteristics, it is not perfect competition. Any market strives for this structure. The main task of the state in this process is to create appropriate conditions through the formation of a regulatory framework.

Advantages of perfect competition

The pursuit of perfect competition allows us to achieve high efficiency of a market economy. Despite the fact that many people call this model ideal, it has both undeniable advantages, as well as some disadvantages.

Advantages of perfect competition:

• market self-regulation;
• no shortage of goods;
• efficient resource allocation;
• high production efficiency;
• no inflated prices;
• equality of opportunity for market participants;
• freedom to develop entrepreneurship;
• the state does not interfere in market processes;
• Both buyers and sellers win here.

Disadvantages of Perfect Competition

Despite the large number of advantages, pure competition also has certain disadvantages:

• the market system is unstable;
• risk of overproduction;
• market participants get different results;
• Each market participant is focused on personal interests, ignoring public ones.

Almost all the disadvantages of this market model boil down to the fact that with equal opportunities, equal results are not achieved. This is explained by the fact that each market participant organizes production in its own way, marketing company, distributes resources, uses innovative technologies. Therefore, success is achieved by those who competently approach the organization of the production and sales process, and also use advanced technologies to beat competitors.

To achieve economic efficiency, it is first necessary to achieve efficiency in production and resource allocation. This is easy to achieve in conditions of perfect competition. Therefore, it is considered an ideal market model. But in reality, its practical implementation does not exist. Minimum costs, efficient distribution of resources, absence of shortages, self-regulation of processes - compliance with all these conditions is impossible in the long term. Although the desire to achieve a system that is as close as possible to pure competition allows the economy to develop.

The manual is presented on the website in an abbreviated version. This version does not include testing, only selected tasks and high-quality assignments are given, and theoretical materials are cut by 30%-50%. Full version I use the manuals in my classes with my students. The content contained in this manual is copyrighted. Attempts to copy and use it without indicating links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policies of search engines (see provisions on the copyright policies of Yandex and Google).

11.1 Perfect competition

We have already defined that a market is a set of rules using which buyers and sellers can interact with each other and carry out transactions. Over the history of the development of economic relations between people, markets have constantly undergone transformations. For example, 20 years ago there was no such abundance electronic markets, which are available to consumers now. Consumers couldn't buy the book household appliances or shoes by simply opening the online store website and making a few mouse clicks.

At the time when Adam Smith began to talk about the nature of markets, they were structured something like this: most of the goods consumed in European economies were produced by a multitude of manufactories and artisans who used primarily manual labor. The company was very limited in size, and used labor of a maximum of several dozen workers, and most often 3-4 workers. At the same time, there were quite a lot of similar manufactories and artisans, and the producers produced fairly homogeneous goods. The variety of brands and types of goods that we are accustomed to in modern society there was no consumption then.

These features led Smith to conclude that neither consumers nor producers have market power, and the price is set freely through the interaction of thousands of buyers and sellers. Observing the features of markets in the late 18th century, Smith concluded that buyers and sellers were guided toward equilibrium by an "invisible hand." Smith summarized the characteristics that were inherent in markets at that time in the term "perfect competition" .

A perfectly competitive market is a market with many small buyers and sellers selling a homogeneous product in conditions where buyers and sellers have the same information about the product and each other. We have already discussed the main conclusion of Smith’s “invisible hand” hypothesis - a perfectly competitive market is capable of ensuring efficient allocation of resources (when a product is sold at prices that exactly reflect the firm’s marginal cost of producing it).

Once upon a time, most markets were indeed similar to perfect competition, but in the late 19th and early 20th centuries, when the world became industrialized, and in a number of industrial sectors (coal mining, steel production, construction railways, banking) monopolies were formed, it became clear that the model of perfect competition was no longer suitable for describing the real state of affairs.

Modern market structures are far from the characteristics of perfect competition, therefore perfect competition is currently an ideal economic model (like an ideal gas in physics), which is unattainable in reality due to numerous friction forces.

The ideal model of perfect competition has the following characteristics:

1. Many small and independent buyers and sellers, unable to influence the market price
2. Free entry and exit of firms, that is, no barriers
3. A homogeneous product with no qualitative differences is sold on the market.
4. Product information is open and equally accessible to all market participants

Subject to these conditions, the market is able to allocate resources and benefits efficiently. The criterion for the efficiency of a competitive market is the equality of prices and marginal costs.

Why does allocative efficiency arise when prices equal marginal cost and are lost when prices do not equal marginal cost? What is market efficiency and how is it achieved?

To answer this question, it is enough to consider a simple model. Consider potato production in an economy of 100 farmers for whom the marginal cost of potato production is an increasing function. The 1st kilogram of potatoes costs 1 dollar, the 2nd kilogram of potatoes costs 2 dollars and so on. None of the farmers have such differences in production function that would allow him to get competitive advantage above the rest. In other words, none of the farmers have market power. Farmers can sell all the potatoes they sell at the same price, determined on the market for the balance of general demand and general offer. Consider two farmers: farmer Ivan produces 10 kilograms of potatoes per day at a marginal cost of $10, and farmer Mikhail produces 20 kilograms per day at a marginal cost of $20.

If the market price is $15 per kilogram, then Ivan has an incentive to increase potato production because each additional product and kilogram sold brings him an increase in profit until his marginal cost exceeds 15. For similar reasons, Mikhail has an incentive to reduction in production volumes.

Now let’s imagine the following situation: Ivan, Mikhail, and other farmers initially produce 10 kilograms of potatoes, which they can sell for 15 rubles per kilogram. In this case, each of them has incentives to produce more potatoes, and the current situation will be attractive for the arrival of new farmers. Although each farmer has no influence over the market price, their combined efforts will cause the market price to fall until the opportunity for additional profit for everyone is exhausted.

Thus, thanks to the competition of many players in conditions of complete information and a homogeneous product, the consumer receives the product at the lowest possible price - at a price that only breaks the producer’s marginal costs, but does not exceed them.

Now let's see how equilibrium is established in a perfectly competitive market in graphical models.

The equilibrium market price is established in the market as a result of the interaction of supply and demand. The firm accepts this market price as given. The company knows that at this price it can sell as many goods as it wants, so there is no point in reducing the price. If a company increases the price of a product, it will not be able to sell anything at all. Under these conditions, the demand for the products of one company becomes absolutely elastic:

The firm takes the market price as given, that is P = const.

Under these conditions, the company’s revenue graph looks like a ray emerging from the origin:

It's easy to prove:

MR = TR Q ′ = (P * Q) Q ′

Because the P = const, P can be taken out by the sign of the derivative. In the end it turns out

MR = (P * Q) Q ′ = P * Q Q ′ = P * 1 = P

M.R. is the tangent of the angle of inclination of the straight line TR.

A perfectly competitive firm, like any firm in any market structure, maximizes total profit.

A necessary (but not sufficient condition) for maximizing the firm's profit is that the derivative profit is equal to zero.

r Q ′ = (TR-TC) Q ′ = TR Q ′ - TC Q ′ = MR - MC = 0

Or MR = MC

That is MR = MC is another entry for the condition profit Q ′ = 0.

This condition is necessary, but not sufficient to find the point of maximum profit.

At the point where the derivative is zero, there can be a minimum profit along with a maximum.

A sufficient condition for maximizing the firm's profit is to observe the vicinity of the point where the derivative is equal to zero: to the left of this point the derivative must be greater than zero, to the right of this point the derivative must be less than zero. In this case, the derivative changes sign from plus to minus, and we get the maximum rather than the minimum profit. If in this way we have found several local maxima, then to find the global maximum profit we should simply compare them with each other and select the maximum profit value.

For perfect competition, the simplest case of profit maximization looks like this:

We will consider more complex cases of profit maximization graphically in the appendix in the chapter.

11.1.2 Supply curve of a perfectly competitive firm

We realized that a necessary (but not sufficient) condition for maximizing a firm's profit is equality P=MC.

This means that when MC is an increasing function, then to maximize profits the firm will choose points lying on the MC curve.

But there are situations when it is profitable for a firm to leave an industry rather than produce at the point of maximum profit. This happens when the company, being at the point of maximum profit, cannot cover its variable costs. In this case, the company receives losses that exceed its fixed costs.
The optimal strategy for the company is to exit the market, because in this case it receives losses exactly equal to its fixed costs.

Thus, the firm will remain at the point of maximum profit, and not leave the market when its revenue exceeds variable costs, or, which is the same thing, when its price exceeds average variable costs. P>AVC

Let's look at the graph below:

Of the five designated points at which P=MC, the firm will remain on the market only at points 2,3,4. At points 0 and 1, the firm will choose to exit the industry.

If we consider everything possible options location of straight line P, we will see that the firm will choose points lying on the marginal cost curve that will be higher than AVC min.

Thus, the supply curve of a competitive firm can be constructed as the part of MC lying above AVC min.

This rule is only applicable when the MC and AVC curves are parabolas. Consider the case where MC and AVC are straight lines. In this case, the total cost function is a quadratic function: TC = aQ 2 + bQ + FC

Then

MC = TC Q ′ = (aQ 2 + bQ + FC) Q ′ = 2aQ + b

We get the following graph for MC and AVC:

As can be seen from the graph, when Q > 0, the MC graph always lies above the AVC graph (since the MC straight line has a slope 2a, and the straight line AVC is the inclination angle a.

11.1.3 Equilibrium of a perfectly competitive firm in the short run

Let us recall that in the short term the company necessarily has both variable and fixed factors. This means that the company’s costs consist of a variable and a fixed part:

TC = VC(Q) + FC

The firm's profit is p = TR - TC = P*Q - AC*Q = Q(P - AC)

At the point Q* The firm achieves maximum profit because it P=MC(a necessary condition), and profit changes from increasing to decreasing (sufficient condition). On the graph, the firm's profit is depicted as a shaded rectangle. The base of the rectangle is Q*, the height of the rectangle is (P - AC). The area of ​​the rectangle is Q * (P - AC) = p

That is, in this version of equilibrium, the firm receives economic profit and continues to operate in the market. In this case P>AC at the optimal release point Q*.

Let's consider the equilibrium option when the firm receives zero economic profit

In this case, the price at the optimum point is equal to average costs.

A firm can even earn negative economic profits and still continue to operate in the industry. This occurs when the optimum price is lower than average but higher than average variable cost. The company, even receiving economic profit, covers variable and part of the fixed costs. If the company leaves, it will bear all fixed costs, so it continues to operate in the market.

Finally, the firm leaves the industry when, at the optimal volume of output, its revenue does not even cover variable costs, that is, when P< AVC

Thus, we have seen that a competitive firm can earn positive, zero, or negative profits in the short run. A firm exits the industry only when, at the point of optimal output, its revenue does not even cover its variable costs.

11.1.4 Equilibrium of a competitive firm in the long run

The difference between the long-term period and the short-term period is that all factors of production for the company are variable, that is, there are no fixed costs. Also, as in the short term, firms can easily enter and exit the market.

Let us prove that in the long run the only stable market condition is one in which economic profit each firm tends to zero.

Let's consider 2 cases.

Case 1 . The market price is such that firms earn positive economic profits.

What will happen to the industry in the long term?

Since information is open and publicly available, and there are no market barriers, the presence of positive economic profits for firms will attract new firms to the industry. When new firms enter the market, they shift market supply to the right, and the equilibrium market price drops to a level at which the opportunity to make a positive profit will not be completely exhausted.

Case 2 . The market price is such that firms receive negative economic profits.

In this case, everything will happen in the opposite direction: since firms receive negative economic profit, some firms will leave the industry, supply will decrease, and the price will rise to a level at which the economic profit of firms will not be equal to zero.

• 7.1. Features of a perfectly competitive market.
• 7.2. Activities of a competitive firm in the short term.
• 7.3. A perfectly competitive market in the long run.

Control questions.

In topic 7, pay attention to the connection with the theory of the following current problems Russian economy:

• Why is there no free pricing in criminally controlled markets?
• Where can you find perfect competition in Russia?
• Bankruptcy of enterprises in Russia.
• What are they doing? Russian enterprises to reach the break-even zone?
• Why are production temporarily stopped at Russian factories?
• Does the proliferation of small businesses lead to price changes?
• Why government intervention may be necessary even in highly competitive markets.

Features of a perfectly competitive market

Supply and demand - two factors that give life to the market as a meeting place, form the price level for goods and services in the economy. By defining cost and revenue curves, they create external environment existence of the company. The behavior of the company itself, its choice of production volumes, and therefore the size of demand for resources and the amount of supply own goods depend on the type of market in which it operates.

competition

The most powerful factor dictating General terms the functioning of a particular market is the degree of development of competitive relations in it.

Etymologically the word competition goes back to Latin concurrentia, meaning clash, competition. Market competition called the struggle for limited consumer demand, waged between firms in the parts (segments) of the market available to them. As already noted (see 2.2.2), competition in a market economy performs the most important function of counterbalancing and at the same time complementing the individualism of market subjects. It forces them to take into account the interests of the consumer, and therefore the interests of society as a whole.

Indeed, during competition, the market selects from a variety of goods only those that consumers need. They are the ones who manage to sell. Others remain unclaimed and their production ceases. In other words, outside competitive environment the individual satisfies his own interests without regard to others. In a competitive environment, the only way to realize one’s own interests is to take into account the interests of other persons. Competition is a specific mechanism by which a market economy resolves fundamental issues What? How? for whom to produce 2

The development of competitive relations is closely related to splitting of economic power. When it is absent, the consumer is deprived of choice and is forced to either completely agree to the conditions dictated by the manufacturer, or be completely left without the benefit he needs. On the contrary, when economic power is split and the consumer is faced with many suppliers of similar goods, he can choose the one that best suits his needs and financial capabilities.

Competition and types of markets

According to the degree of development of competition economic theory identifies the following main market types:

• 1. Perfect competition market,
• 2. The market of imperfect competition, in turn divided into:
  • a) monopolistic competition;
  • b) oligopoly;
  • c) monopoly.

In a perfectly competitive market, the division of economic power is maximized and the mechanisms of competition operate at full strength. There are many manufacturers operating here, deprived of any leverage to impose their will on consumers.

With imperfect competition, the division of economic power is weakened or absent altogether. Therefore, the manufacturer acquires a certain degree of influence on the market.

The degree of market imperfection depends on the type of imperfect competition. In conditions of monopolistic competition, it is small and is associated only with the ability of the manufacturer to produce special varieties of goods that differ from competitive ones. In an oligopoly, market imperfection is significant and is dictated by the small number of firms operating on it. Finally, monopoly means the dominance of only one producer in the market.

7.1.1. Conditions of perfect competition

The perfectly competitive market model is based on four basic conditions (Figure 7.1).

Let's consider them sequentially.

Rice. 7.1.

In order for competition to be perfect, the goods offered by firms must meet the condition of product homogeneity. This means that the products of firms in the minds of buyers are homogeneous and indistinguishable, i.e. products of different enterprises are completely interchangeable (they are complete substitute goods).

Uniformity

products

Under these conditions, no buyer would be willing to pay a higher price to a hypothetical firm than he would pay to its competitors. After all, the goods are the same, buyers do not care which company they buy them from, and they, of course, choose the cheapest ones. That is, the condition of product homogeneity actually means that the difference in prices is the only reason why a buyer can choose one seller over another.

Small size and large number of market entities

In perfect competition, neither sellers nor buyers influence market situation due to the smallness and number of all market entities. Sometimes both of these sides of perfect competition are combined when talking about the atomistic structure of the market. This means that there are a large number of small sellers and buyers in the market, just as any drop of water is made up of a gigantic number of tiny atoms.

At the same time, the purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market that the decision to reduce or increase their volumes does not create either surpluses or shortages. The total size of supply and demand simply “does not notice” such small changes. So, if one of the countless beer stalls in Moscow closes, the capital’s beer market will not become one iota more scarce, just as there will not be a surplus of the people’s favorite drink if another “point” appears in addition to the existing ones.

Inability to dictate price to the market

These restrictions (homogeneity of products, large number and small size of enterprises) actually predetermine that With perfect competition, market participants are unable to influence prices.

It’s ridiculous to believe, say, that one potato seller at the “collective farm” market will be able to impose more high price for your product, if other conditions of perfect competition are met. Namely, if there are many sellers and their potatoes are exactly the same. Therefore, it is often said that under perfect competition, each individual selling firm “gets the price,” or is a price-taker.

Market actors in conditions of perfect competition can influence the overall situation only when they act in harmony. That is, when some external conditions encourage all sellers (or all buyers) in the industry to make the same decisions. In 1998, Russians experienced this for themselves, when in the first days after the devaluation of the ruble, all food stores, without agreement, but with the same understanding of the situation, unanimously began to raise prices for “crisis” goods - sugar, salt, flour, etc. Although the price increase was not economically justified (these goods rose in price much more than the ruble depreciated), sellers managed to impose their will on the market precisely as a result of the unity of the position they took.

And this is not a special case. The difference in the consequences of changes in supply (or demand) by one firm and the entire industry as a whole plays a large role in the functioning of a perfectly competitive market.

No barriers

The next condition for a perfect police force (the goal is to force the criminal “owners” of the market to reveal themselves, and then arrest them), it fights precisely to remove barriers to entry into the market.

On the contrary, typical for perfect competition no barriers or freedom to enter to the market (industry) and leave it means that resources are completely mobile and move without problems from one type of activity to another. Buyers freely change their preferences when choosing goods, and sellers easily switch production to produce more profitable products.

There are no difficulties with the cessation of operations on the market. Conditions do not force anyone to remain in the industry if it is not in their best interests. In other words, the absence of barriers means absolute flexibility and adaptability of a perfectly competitive market.

Perfect

information

The last condition for the existence of a perfectly competitive market is that

giving standardized homogeneous products, and, therefore, operating in conditions close to perfect competition.

2. It has enormous methodological significance, since it allows - albeit at the cost of large simplifications of the real market picture - to understand the logic of the company's actions. This technique, by the way, is typical for many sciences. Thus, in physics a number of concepts are used ( ideal gas, black body, ideal engine), based on assumptions (no friction, heat loss, etc.), which are never completely fulfilled in the real world, but serve as convenient models for describing it.

The methodological value of the concept of perfect competition will be fully revealed later (see topics 8, 9 and 10), when considering the markets of monopolistic competition, oligopoly and monopoly, which are widespread in the real economy. Now it is advisable to dwell on the practical significance of the theory of perfect competition.

What conditions can be considered close to a perfectly competitive market? Generally speaking, there are different answers to this question. We will approach it from the position of the firm, that is, we will find out in what cases the firm in practice acts as (or almost as) as if it were surrounded by a perfectly competitive market.

Criterion

perfect

competition

Let us first understand what the demand curve for the products of a firm operating in conditions of perfect competition should look like. Let us remember, firstly, that the company accepts the market price, i.e. the latter is a given value for it. Secondly, the company enters the market with a very small part of the total quantity of goods produced and sold by the industry. Consequently, the volume of its production will not affect the market situation in any way and this given price level will not change with an increase or decrease in output.

Obviously, in such conditions, the demand curve for the company's products will look like a horizontal line (Fig. 7.2). Whether the firm produces 10 units of output, 20 or 1, the market will absorb them at the same price P.

From an economic point of view, a price line parallel to the x-axis means absolute elasticity of demand. In the case of an infinitesimal reduction in price, the firm could expand its sales indefinitely. With an infinitesimal increase in price, the company's sales would be reduced to zero.

The presence of absolutely elastic demand for a firm's products is usually called the criterion of perfect competition. As soon as such a situation develops in the market, the company begins

Rice. 7.2. Demand and total revenue curves for an individual firm under perfect competition

behave like (or almost like) a perfect competitor. Indeed, fulfilling the criterion of perfect competition sets many conditions for the company to operate in the market, in particular, it determines the patterns of income generation.

Average, marginal and total revenue of a firm

Income (revenue) of a company refers to payments received in its favor when selling products. Like many other indicators, economics calculates income in three varieties. Total income(TR) name the total amount of revenue that the company receives. Average income(AR) reflects revenue per unit products sold , or (which is the same) total revenue divided by the number of products sold. Finally, marginal revenue(MR) represents additional income received as a result of the sale of the last unit of production sold.

A direct consequence of fulfilling the criterion of perfect competition is that the average income for any volume of output is equal to the same value - the price of the product and that the marginal income is always at the same level. So, if the established market price for a loaf of bread is 3 rubles, then the bread stall acting as a perfect competitor accepts it regardless of sales volume (the criterion of perfect competition is met). Both 100 and 1000 loaves will be sold at the same price per piece. Under these conditions, each additional loaf sold will bring the stall 3 rubles. (marginal revenue). And the same amount of revenue will be generated on average for each loaf of bread sold (average income). Thus, equality is established between average income, marginal income and price (AR=MR=P). Therefore, the demand curve for the products of an individual enterprise under conditions of perfect competition is at the same time the curve of its average and marginal revenue.

Regarding the total income ( total revenue) of the enterprise, then it changes in proportion to the change in output and in the same direction (see Fig. 7.2). That is, there is a direct, linear relationship:

If the stall in our example sold 100 loaves of bread for 3 rubles, then its revenue, naturally, will be 300 rubles.

Graphically, the total (gross) income curve is a ray drawn through the origin with a slope:

That is, the slope of the gross revenue curve is equal to marginal revenue, which in turn is equal to the market price of the product sold by a competitive firm. From here, in particular, it follows that the higher the price, the steeper the gross income straight line will go up.

Small business in Russia and perfect competition

The simplest example we have already given, which is constantly encountered in everyday life, with the sale of bread, suggests that the theory of perfect competition is not as far from Russian reality as one might think.

The fact is that most new businessmen started their business literally from scratch: no one had large capital in the USSR. Therefore, small business has covered even those areas that in other countries are controlled by big capital. Nowhere in the world do small firms play a significant role in export-import transactions. In our country, many categories of consumer goods are imported mainly by millions of shuttles, i.e. not even just small, but the smallest enterprises. In the same way, only in Russia, construction for private individuals and renovation of apartments are actively carried out by “wild” teams - the smallest companies, often operating without any registration. A specifically Russian phenomenon is “small wholesale“- this term is even difficult to translate into many languages. In German, for example, wholesale trade is called “large trade” - Grosshandel, since it is usually carried out on a large scale. Therefore, German newspapers often convey the Russian phrase “small-scale wholesale trade” with the absurd-sounding term “small-scale trade.”

Shuttles selling Chinese sneakers; and ateliers, photography, hairdressing salons; sellers offering the same brands of cigarettes and vodka at metro stations, and auto repair shops; typists and translators; apartment renovation specialists and peasants selling at collective farm markets - they are all united by the approximate similarity of the product offered, the insignificant scale of business compared to the size of the market, the large number of sellers, i.e., many of the conditions of perfect competition. It is also obligatory for them to accept the prevailing market price. The criterion of perfect competition in the sphere of small business in Russia is met quite often. In general, albeit with some exaggeration, Russia can be called a country-reserve of perfect competition. In any case, conditions close to it exist in many sectors of the economy where the new private business(and not privatized enterprises).

home » Earn money online » Perfect competition. Examples of perfect competition. Perfect competition: characteristics and distribution. Demand for a competitive seller's product Perfect competition in simple words