As already noted, the most important features of a market system are independence, independence, and economic freedom of market entities, which presupposes, in particular, the freedom of the manufacturer to choose the type, volume, and price of products. But if everyone has the right to freely produce and sell their product, then there are many producers (sellers) on the market and competition, competition, objectively arises between them.

Competition(from lat. competitor - run together, clash) is the struggle of entrepreneurs for the most profitable terms production and marketing of goods in order to obtain maximum profits. The Law of the Russian Federation “On Competition and Limitation of Monopolistic Activities in Commodity Markets” gives the following definition of competition: “competition is the competitiveness of economic entities when their independent actions effectively limit the ability of each of them to unilaterally influence General terms circulation of goods on the relevant product market” (Article 4. Appendix 5.1).

The importance of competition cannot be overstated. It is in the course of competition in a market economy that the questions of what, how and for whom should be produced are resolved.

Competition is a way efficient distribution limited resources society. If supply is greater than demand, then a struggle inevitably arises between sellers; they are forced to reduce the price, which, as a rule, leads to a reduction in the volume of production of a given product and to a decrease in resources invested in this production. If demand is greater than supply, then competition arises between buyers, each of them strives to offer a higher price for a scarce product - the price rises, supply increases, i.e. more resources are involved in the production of a given product.

To survive the competition, an entrepreneur must produce exactly what the consumer prefers. This means that resources (factors of production) are directed to those sectors where they are most needed.

Competition fulfills stimulating function. The desire to stay in the market and maximize their profits forces the entrepreneur to improve his production, improve product quality, and reduce production costs. In competition, each seller, thinking primarily about his own benefit, offers better or cheaper goods, thereby benefiting his customers and the economic well-being of society as a whole.

Through competition occurs income distribution in accordance with the contribution and efficiency of use of production factors. Efficient use of resources allows producers to receive high incomes; if resources are used inefficiently, they incur losses and can be forced out of the market.

There are different types of competitive behavior:

Creative (constructive) – behavior aimed at creating preconditions that ensure superiority over rivals;

Adaptive – taking into account innovative changes in production (copying) and proactive actions of rivals;

Providing (guaranteing) – behavior aimed at maintaining the achieved positions.

From point of view activity of participation in competition in a particular market there are: leaders; leadership candidates; slaves; newcomers.

It is obvious that “followers” ​​are less active in the competitive struggle, it reaches greater severity between “leaders” and “candidates for leadership”, and the most active, attacking competitors are “newcomers”.

In order to provide better opportunities for selling their products, sellers use different methods of competition:

price competition, when a manufacturer, in order to create more favorable market conditions for its products and undermine the position of a competitor, reduces the price by reducing production costs. If the seller occupies a dominant position in a particular market, then he can establish a monopolistic low price on products and without changing production costs.

non-price competition: increasing the technical level, product quality, production new products, creation of substitute products, after-sales service, advertising. In the modern world, non-price competition is the most common.

All these are methods honest, fair competitive struggle, they are “legal” in nature. Fair competition leads to consumer gain(he receives more varied products, best quality, at lower prices).

Competition can be unscrupulous, dishonest. Such competition refers to ways to strengthen market position firms associated not with improving product quality and reducing production costs, but with the use of methods such as:

Selling at a price below cost;

Establishing discriminatory (different for different buyers) prices or commercial conditions;

Establishing the dependence of the supply of specific goods on the adoption of restrictions on the production of competing goods;

Unfair copying of competitors' products;

Violation of quality, standards and conditions of supply of goods;

Industrial espionage;

Poaching leading specialists from rival companies, etc.

Unfair competition is prohibited by the laws of most countries with market economies, civil and criminal codes. The Law of the Russian Federation “On Competition and Restriction of Monopolistic Activities in Commodity Markets” defines unfair competition as “any aimed at acquiring advantages in entrepreneurial activity actions of business entities that contradict the provisions of the current legislation, business customs, requirements of integrity, reasonableness and fairness and may cause or have caused losses to other business entities - competitors or damage them business reputation"(v. 4). The law does not allow unfair competition, including:

Dissemination of false, inaccurate or distorted information that could cause losses to another business entity or damage its business reputation;

Misleading consumers regarding the nature, method and place of manufacture, consumer properties, quality of the product;

Incorrect comparison by an economic entity of the goods produced or sold by it with the goods of other economic entities;

Sale of goods with illegal use of the results of intellectual activity...

Receipt, use, disclosure of scientific, technical, production or trade information, including trade secrets, without the consent of its owner (Article 4).

So competition is necessary tool market mechanism, a way to achieve market equilibrium. However, the nature of competition may vary. Depending on the relationship between competition and monopoly, two types of markets are distinguished: perfect and imperfect. perfect competition.

27.Perfect, free or pure competition- an economic model, an idealized state of the market, when individual buyers and sellers cannot influence the price, but form it through their contribution of supply and demand. In other words, this is a type of market structure where the market behavior of sellers and buyers is to adapt to the equilibrium state of market conditions.

Signs of perfect competition:

· an infinite number of equal sellers and buyers

homogeneity and divisibility of products sold

· no barriers to entry or exit from the market

high mobility of production factors

· equal and full access of all participants to information (prices of goods)

In the case where at least one sign is missing, competition is called imperfect. In the case when these signs are artificially removed in order to occupy a monopoly position in the market, the situation is called unfair competition.

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

David Ricardo identified a natural downward trend in conditions of perfect competition economic profit each of the sellers.

In a real economy, the exchange market most closely resembles a perfectly competitive market. While observing the phenomena economic crises it was concluded that this form of competition usually fails, from which it is possible to get out only through external intervention.

Efficiency of resource allocation- optimal allocation of resources between firms and industries, which allows the production of aggregate products that best meet the needs of consumers. The criterion for the efficiency of resource allocation is the equality of price (p) and marginal cost (MC). The discrepancy between the indicated values ​​means for individual firms less than the maximum possible profits, as well as underallocated resources (p > MC) or an excessive amount of them (p< МС).

In conditions pure competition Entrepreneurs driven by the profit motive will produce a volume of output at which price and marginal costs are equal. This means that resources in a competitive environment are allocated efficiently

28. Monopolistic competition: equilibrium conditions for the producer in the short and long term. Efficiency of the market of monopolistic competition.

Monopolistic competition- type of market structure imperfect competition. This is a common type of market that is closest to perfect competition.

Monopolistic competition is not only the most common, but also the most difficult to study form of industrial structures. For such an industry, an exact abstract model cannot be built, as can be done in cases of pure monopoly and pure competition. Much here depends on specific details characterizing the manufacturer's product and development strategy, which are almost impossible to predict, as well as on the nature of the strategic choices available to firms in this category.

Thus, most enterprises in the world can be called monopolistically competitive.

Options for the firm's equilibrium in the short and long term

A perfectly competitive firm, as already noted, is quite rare in economics. However, analysis of the behavior of such a company makes it possible to compare the “ideal” market with the real one. The behavior of a perfectly competitive firm is characterized as adaptive, since it adapts costs and production volumes to an externally specified market price. To analyze the behavior of a perfectly competitive firm in the short and long term, it is necessary to determine their differences.
In contrast to the long-term, in the short-term period the volume production capacity remains unchanged. During the short term, the manufacturer does not have time to change the size of the production area or the amount of equipment used. In the short run, the number of firms in the market does not change, so the market price remains unchanged. Economic profit cannot be at zero. In the long term, the manufacturer can change both the amount of equipment used and the size of production capacity. In addition, the number of firms in the market may change in the long run, since there are no economic or legal barriers to entry into the market. As a result of the process of free entry and entry of new firms into the market, zero economic profit is possible.
What will be the behavior of a competitive firm in the short run if the firm is faced with a choice - to stop production or to produce a certain amount of output? In the short run, a competitive firm may operate at a loss because it expects to make a profit in the future. What are the conditions for terminating production? In order to answer this question, it is necessary to analyze the relationship between price (P) and average variable costs (AVC). If the price turns out to be higher than average variable costs, then, accordingly, the income brought by each unit of output will completely cover variable costs and partially permanent. However, fixed costs must always be covered: both when products are produced and when their production is suspended. Therefore, there is a need to continue production to partially pay for them. If the price is lower than average variable costs, then both fixed and variable costs will not be able to be paid in full. In this situation, it is more expedient to suspend production. However, this does not mean a complete closure of production. But if the firm is able to pay fixed costs, then it can remain in the market and continue production if prices rise. Of course, some firms, unable to withstand such a tough situation for long, will be forced to leave the industry. If we present this situation graphically, then the point of departure of the company from the market will be point A (Fig. 9.6).

Rice. 9.6. The supply curve of a competitive firm in the short run.

In the long run, the economic profit of a perfectly competitive firm may be zero. Why? In the long run, the number of firms in the market may change as a result of some firms entering the industry and others leaving. As already noted, this happens due to the absence of any barriers. However, the process of entering and exiting the market may cease. The reason for this may be the lack of economic profit (Fig. 9.7). There will be no economic profit if the price coincides with the minimum long-term average cost (LAC):

Rice. 9.7. Equilibrium of a competitive firm in the long run

29. Oligopoly: the essence of oligopoly; forms of interaction between firms in an oligopolistic market and the factors that determine them. Oligopoly based on cooperation (collusion) of firms; models competitive pricing in an oligopolistic market.

Oligopoly- a type of imperfectly competitive market structure in which an extremely small number of firms dominate. Examples of oligopolies include manufacturers of passenger aircraft, such as Boeing or Airbus, car manufacturers, such as Mercedes, BMW, etc. Another definition of an oligopolistic market can be a Herfindahl index value exceeding 2000. Oligopoly with two participants is called a duopoly

Oligopoly in the commodity market. Oligopolistic pricing models

An oligopolistic market is characterized by: · a small number of firms (2-7); · the specific gravity of each is quite large; · standardized (steel, cement) or differentiated (cars, cigarettes) products; · entry into the market is difficult (by the same barriers that exist in a monopolistic market); · the need to take into account the possible reaction of rivals when making decisions; · lack of a unified pricing model, while the basic rule of profit maximization (MR=MC) is taken into account. In oligopolistic markets, firms exercise control over prices and production volumes and have profits in both the short and long term. Let's name some pricing models. Price war model (conscious competition). A price war is a consistent reduction in price by firms competing in an oligopolistic market. This situation arises if a competitor is tempted to increase its sales by cutting prices and thereby capturing the sales market. All firms in the industry are being drawn into this process. The price war continues until the price falls to average cost; economic profit in this case is already zero. Schedule. Price war model (equilibrium at P=AC) Price wars are good for buyers; oligopolistic firms ultimately lose their income (except, perhaps, for the firm that starts the war). Therefore, this situation does not arise often. The collusion model is more widespread. Firms reach an agreement (in a cartel firm) on prices and production volumes. This makes it possible to limit competition, reduce uncertainty and increase profits. But there are obstacles to collusion (differences in costs, legal obstacles, the possibility of new competitors, the number of firms, etc.), so it is short-lived. Schedule. Collusion model (MR=MC; P>AC) Another model for coordinating the price behavior of oligopolists is price leadership, in which one of the manufacturer-sellers receives the status of a price leader recognized by others. He regulates the price of products, all other firms follow him. The price leader takes the risk of being the first to begin adjusting prices to changing market conditions, while adhering to the following tactics: · sets the price taking into account the profit maximization rule MR=MC in order to prevent other firms from entering the industry and maintaining its oligopolistic structure; · the price is not adjusted frequently (only if there is a significant change in demand or costs); · announces impending price revisions in industry publications. Typically, there are two main types of price leadership - the leadership of a company with significantly lower costs than its competitors and the leadership of a company that occupies a dominant position in the market, but is not significantly different from its followers in terms of costs. Schedule. Price leadership model Cournot model. The model of duopoly (two competing firms) was first proposed by the French mathematician and economist Augustin Cournot in 1838. The model assumes that firms produce a homogeneous product. Each firm must decide how much to produce, remember that its competitor is also making a production decision, and that the price will ultimately depend on the combined output of both firms. The essence of the model is that, when making a decision, the oligopolist is guided by the desire to maximize his profit, assuming the output of another oligopolist as given. As a result, the process will end with equalization of their outputs, and then the duopoly reaches a state of Cournot equilibrium, under which each firm maximizes its profit. Price rigidity is the basis of the kinked demand curve model of an oligopoly firm. The model explains price inflexibility, but not price setting itself. Firms strive for price stability. Even if costs are reduced or demand falls, oligopolists are in no hurry to reduce prices (they are afraid, believing that they may be misunderstood by competitors and a price war will begin). If costs or demand grow, they do not strive to increase the price (they think: competitors may not follow them). Any price change will lead to undesirable consequences, so firms try to maintain the price.

30 Patterns of formation of supply and demand for economic resources.

patterns of demand formation can be expressed in two ways:

1.Tabular:

R, rub. 1 2 3 4 5

2.Graphic:

Demand curve is a curve showing how much economic goods consumers are willing to buy at different prices at a given point in time.

Factors influencing demand:

1.Price.

2. Non-price.

Non-price factors:

1. Changes in the monetary income of the population.

2. Change in population structure.

3.Change in prices for substitute goods.

4. Economic policy of the government.

5.Change in consumer preferences.

11.Concept market supply, supply curves. Factors influencing supply.

Supply is the willingness of manufacturers and sellers of goods to provide a certain amount of goods to the market at a given price. The law of supply is directly proportional between price and quantity.

Arguments in favor of the law of supply:

1. A high price covers production costs and generates income.

2.High price finances production expansion.

In the short run, the law of diminishing returns applies, since as a variable factor of production increases by a constant one, the return from each additional unit of the increasing factor tends to fall. As a result of this law, an increase in production in the short term causes a rapid increase in costs.

Factors influencing supply:

Non-price.

Non-price factors:

Prices for resources.

New technologies.

Increasing taxes on producers - they cause costs to rise and supply decreases.

A perfectly competitive market is characterized by the following features:

The firms' products are homogeneous, so consumers don’t care which manufacturer they buy it from. All goods in the industry are perfect substitutes, and the cross price elasticity of demand for any pair of firms tends to infinity:

This means that any, no matter how small, increase in price by one manufacturer above the market level leads to a reduction in demand for its products to zero. Thus, the difference in prices may be the only reason for preferring one or another company. There is no non-price competition.

The number of economic entities on the market is unlimited, and their share is so small that the decisions of an individual company (individual consumer) to change the volume of its sales (purchases) do not affect the market price product. This, of course, assumes that there is no collusion between sellers or buyers to obtain monopoly power in the market. The market price is the result of the joint actions of all buyers and sellers.

Freedom of entry and exit on the market. There are no restrictions or barriers - there are no patents or licenses limiting activities in this industry, significant initial capital investments are not required, the positive effect of scale of production is extremely insignificant and does not prevent new firms from entering the industry, there is no government intervention in the mechanism of supply and demand (subsidies , tax benefits, quotas, social programs and so on.). Freedom of entry and exit presupposes absolute mobility of all resources, freedom of their movement geographically and from one type of activity to another.

Perfect knowledge all market entities. All decisions are made with certainty. This means that all firms know their revenue and cost functions, the prices of all resources and all possible technologies, and all consumers have complete information about the prices of all firms. It is assumed that information is distributed instantly and free of charge.

These characteristics are so strict that there are practically no real markets that fully satisfy them.

However, the perfect competition model:

• allows you to explore markets in which a large number of small firms sell homogeneous products, i.e. markets similar in terms of conditions to this model;

• clarifies the conditions for maximizing profits;
• is the standard for assessing the performance of the real economy.

Short-run equilibrium of a firm under perfect competition

Demand for a perfect competitor's product

Under conditions of perfect competition, the prevailing market price is established through the interaction of market demand and market supply, as shown in Fig. 1, and determines the horizontal demand curve and average revenue (AR) for each individual firm.

Rice. 1. Demand curve for a competitor’s products

Due to product homogeneity and availability large quantity perfect substitutes, no firm can sell its product at a price even slightly higher than the equilibrium price, Re. On the other hand, an individual firm is very small compared to the total market, and it can sell all its output at the price Pe, i.e. she has no need to sell the goods at a price below Re. Thus, all firms sell their products at the market price Pe, determined by market supply and demand.

The income of a firm that is a perfect competitor

The horizontal demand curve for the products of an individual firm and a single market price (P=const) predetermine the shape of income curves under conditions of perfect competition.

1. Total income () - the total amount of income received by the company from the sale of all its products,

represented on the graph by a linear function that has a positive slope and originates at the origin, since any unit of output sold increases volume by an amount equal to the market price!!Re??.

2. Average income () - income from the sale of a unit of production,

is determined by the equilibrium market price!!Re??, and the curve coincides with the firm's demand curve. A-priory

3. Marginal income () - additional income from the sale of one additional unit of output,

Marginal revenue is also determined by the current market price for any volume of output.

A-priory

All income functions are presented in Fig. 2.

Rice. 2. Income of a competing company

Determining the optimal output volume

In perfect competition, the current price is set by the market, and an individual firm cannot influence it because it is price taker. Under these conditions, the only way to increase profits is to regulate output.

Based on the market and technological conditions existing at a given time, the company determines optimal output volume, i.e. volume of output providing the company profit maximization(or minimization if making a profit is impossible).

There are two interrelated methods for determining the optimum point:

1. Total cost - total income method.

The firm's total profit is maximized at the level of output where the difference between and is as large as possible.

n=TR-TC=max

Rice. 3. Determination of the optimal production point

In Fig. 3, the optimizing volume is located at the point where the tangent to the TC curve has the same slope as the TR curve. The profit function is found by subtracting TC from TR for each volume of production. The peak of the total profit curve (p) shows the level of output at which profit is maximized in the short run.

From the analysis of the total profit function it follows that total profit reaches its maximum at the volume of production at which its derivative is equal to zero, or

dп/dQ=(п)`= 0.

The derivative of the total profit function has a strictly defined economic sense is the marginal profit.

Marginal profit ( MP) shows the increase in total profit when the volume of output changes by one unit.

• If Mn>0, then the total profit function increases, and additional production can increase the total profit.
• If MP<0, то функция совокупной прибыли уменьшается, и дополнительный выпуск сократит совокупную прибыль.
• And finally, if Mn=0, then the value of the total profit is maximum.

From the first condition of profit maximization ( MP=0) the second method follows.

2. Marginal cost-marginal revenue method.

• Мп=(п)`=dп/dQ,
• (n)`=dTR/dQ-dTC/dQ.

And since dTR/dQ=MR, A dTC/dQ=MS, then total profit reaches its greatest value at such a volume of output at which marginal costs are equal to marginal revenue:

If marginal costs are greater than marginal revenue (MC>MR), then the enterprise can increase profits by reducing production volume. If marginal cost is less than marginal revenue (MC<МR), то прибыль может быть увеличена за счет расширения производства, и лишь при МС=МR прибыль достигает своего максимального значения, т.е. устанавливается равновесие.

This equality valid for any market structures, however, under conditions of perfect competition it is slightly modified.

Since the market price is identical to the average and marginal revenues of a firm - a perfect competitor (PAR = MR), the equality of marginal costs and marginal revenues is transformed into the equality of marginal costs and prices:

The firm operates in conditions of perfect competition. Current market price P = 20 USD The total cost function has the form TC=75+17Q+4Q2.

It is necessary to determine the optimal output volume.

To find the optimal volume, we calculate MC and MR and equate them to each other.

• 1. МR=P*=20.
• 2. MS=(TS)`=17+8Q.
• 3. MC=MR.
• 20=17+8Q.
• 8Q=3.
• Q=3/8.

Thus, the optimal volume is Q*=3/8.

The optimal volume can also be found by equating the marginal profit to zero.

• 1. Find the total income: TR=Р*Q=20Q
• 2. Find the total profit function:
• n=TR-TC,
• n=20Q-(75+17Q+4Q2)=3Q-4Q2-75.
• 3. Define the marginal profit function:
• MP=(n)`=3-8Q,
• and then equate MP to zero.
• 3-8Q=0;
• Q=3/8.

Solving this equation, we got the same result.

Condition for obtaining short-term benefits

The total profit of an enterprise can be assessed in two ways:

• P=TR-TC;
• P=(P-ATS)Q.

If we divide the second equality by Q, we get the expression

characterizing the average profit, or profit per unit of output.

It follows from this that whether a firm obtains profits (or losses) in the short term depends on the ratio of its average total costs (ATC) at the point of optimal production Q* and the current market price (at which the firm, a perfect competitor, is forced to trade).

The following options are possible:

if P*>ATC, then the firm has positive economic profit in the short term;

In the presented figure, the volume of total profit corresponds to the area of ​​the shaded rectangle, and the average profit (i.e. profit per unit of output) is determined by the vertical distance between P and ATC. It is important to note that at the optimum point Q*, when MC = MR, and the total profit reaches its maximum value, n = max, the average profit is not maximum, since it is determined not by the ratio of MC and MR, but by the ratio of P and ATC.

if P*<АТС, то фирма имеет в краткосрочном периоде отрицательную экономическую прибыль (убытки);

if P*=ATC, then economic profit is zero, production is break-even, and the firm receives only normal profit.

Condition for cessation of production activities

In conditions when the current market price does not bring positive economic profit in the short term, the company faces a choice:

• or continue unprofitable production,
• or temporarily suspend its production, but incur losses in the amount of fixed costs ( F.C.) production.

The company makes a decision on this issue based on the ratio of its average variable cost (AVC) and market price.

When a firm decides to close, its total revenues ( TR) fall to zero, and the resulting losses become equal to its total fixed costs. Therefore, until price is greater than average variable cost

P>АВС,

company production should continue. In this case, the income received will cover all variables and at least part of the fixed costs, i.e. losses will be less than at closure.

If price equals average variable cost

then from the point of view of minimizing losses to the company indifferent, continue or cease its production. However, most likely the company will continue to operate in order not to lose its customers and preserve the jobs of its employees. At the same time, its losses will not be higher than at closure.

And finally, if prices are less than average variable costs then the company should cease operations. In this case, she will be able to avoid unnecessary losses.

Let us prove the validity of these arguments.

A-priory, n=TR-TC. If a firm maximizes its profit by producing the nth number of products, then this profit ( pn) must be greater than or equal to the profit of the company in conditions of closure of the enterprise ( By), because otherwise the entrepreneur will immediately close his enterprise.

In other words,

Thus, the firm will continue to operate only as long as the market price is greater than or equal to its average variable cost. Only under these conditions will the company minimize its losses in the short term by continuing its activities.

Equality MS=MR, as well as equality MP=0 show the optimal output volume (i.e., the volume that maximizes profits and minimizes losses for the company).

The relationship between price ( R) and average total costs ( ATS) shows the amount of profit or loss per unit of output if production continues.

The relationship between price ( R) and average variable costs ( AVC) determines whether or not it is necessary to continue activities in the event of unprofitable production.

Short-run supply curve of a competing firm

A-priory, supply curve reflects the supply function and shows the quantity of goods and services that producers are willing to offer to the market at given prices, at a given time and place.

To determine the shape of the short-run supply curve for a perfectly competitive firm,

Suppose the market price is Ro, and the average and marginal cost curves look like in Fig. 4.8.

Because the Ro(closing point), then the firm’s supply is zero. If the market price rises to a higher level, then the equilibrium output will be determined by the ratio M.C. And M.R.. The very point of the supply curve ( Q;P) will lie on the marginal cost curve.

By successively increasing the market price and connecting the resulting dots, we get the short-run supply curve. As can be seen from the presented Fig. 4.8, for a perfect competitor firm, the short-run supply curve coincides with its marginal cost curve ( MS) above the minimum level of average variable costs ( AVC). At lower than min AVC level of market prices, the supply curve coincides with the price axis.

It is known that a perfect competitor firm has total (TC) and total variable (TVC) costs represented by the following equations:

• TS=10+6 Q-2 Q 2 +(1/3) Q 3 , Where TFC=10;
• TVC=6 Q-2 Q 2 +(1/3) Q 3 .

Determine the supply function of a firm under perfect competition.

1. Find MS:

MS=(TC)`=(VC)`=6-4Q+Q 2 =2+(Q-2) 2 .

2. Let us equate MC to the market price (condition of market equilibrium under perfect competition MC=MR=P*) and obtain:

2+(Q-2) 2 = P or

Q=2(P-2) 1/2 , If R2.

However, from the previous material we know that the volume of supply Q = 0 at P

Q=S(P) at Pmin AVC.

3. Determine the volume at which average variable costs are minimal:

• min AVC=(TVC)/ Q=6-2 Q+(1/3) Q 2 ;
• (AVC)`= dAVC/ dQ=0;
• -2+(2/3) Q=0;
• Q=3,

those. Average variable costs reach their minimum at a given volume.

4. Determine what min AVC is equal to by substituting Q=3 into the min AVC equation.

• min AVC=6-2(3)+(1/3)(3) 2 =3.

5. Thus, the firm’s supply function will be:

• Q=2+(P-2) 1/2 ,If P3;
• Q=0 if R<3.

Long-run market equilibrium under perfect competition

Long term

So far we have considered the short-term period, which assumes:

• the existence of a constant number of firms in the industry;
• the presence of enterprises with a certain amount of permanent resources.

In the long term:

• all resources are variable, which means that it is possible for a company operating in the market to change the size of production, introduce new technology, or modify products;
• change in the number of enterprises in the industry (if the profit received by the company is lower than normal and negative forecasts for the future prevail, the enterprise may close and leave the market, and vice versa, if the profit in the industry is high enough, an influx of new companies is possible).

Basic assumptions of the analysis

To simplify the analysis, let us assume that the industry consists of n typical enterprises with same cost structure, and that a change in the output of existing firms or a change in their number do not affect resource prices(we will remove this assumption later).

Let the market price P1 determined by the interaction of market demand ( D1) and market supply ( S1). The cost structure of a typical company in the short term looks like curves SATC1 And SMC1(Fig. 4.9).

Rice. 9. Long-run equilibrium of a perfectly competitive industry

Mechanism for the formation of long-term equilibrium

Under these conditions, the firm's optimal output in the short run will be q1 units. Production of this volume provides the company with positive economic profit, since the market price (P1) exceeds the firm's average short-term costs (SATC1).

Availability short-term positive profit leads to two interrelated processes:

• on the one hand, a company already operating in the industry strives expand your production and receive economies of scale in the long term (according to the LATC curve);
• on the other hand, external firms will begin to show interest in penetration into this industry(depending on the amount of economic profit, the penetration process will proceed at different speeds).

The emergence of new firms in the industry and the expansion of the activities of old ones shifts the market supply curve to the right to the position S2(as shown in Fig. 9). The market price decreases from P1 before P2, and the equilibrium volume of industry production will increase from Q1 before Q2. Under these conditions, the economic profit of a typical firm falls to zero ( P=SATC) and the process of attracting new companies to the industry is slowing down.

If for some reason (for example, the extreme attractiveness of initial profits and market prospects) a typical firm expands its production to level q3, then the industry supply curve will shift even further to the right to the position S3, and the equilibrium price will fall to the level P3, lower than min SATC. This will mean that firms will no longer be able to make even normal profits and a gradual decline will begin. outflow of companies into more profitable areas of activity (as a rule, the least effective ones go).

The remaining enterprises will try to reduce their costs by optimizing sizes (i.e. by slightly reducing the scale of production to q2) to the level at which SATC=LATC, and it is possible to obtain a normal profit.

Shift of the industry supply curve to the level Q2 will cause the market price to rise to P2(equal to the minimum value of long-term average costs, Р=min LAC). At a given price level, a typical firm makes no economic profit ( economic profit is zero, n=0), and is only capable of extracting normal profit. Consequently, the motivation for new firms to enter the industry disappears and a long-term equilibrium is established in the industry.

Let's consider what happens if the equilibrium in the industry is upset.

Let the market price ( R) has established itself below the long-term average costs of a typical firm, i.e. P. Under these conditions, the company begins to incur losses. There is an outflow of firms from the industry, a shift in market supply to the left, and while market demand remains unchanged, the market price rises to the equilibrium level.

If the market price ( R) is set above the average long-term costs of a typical firm, i.e. P>LAТC, then the firm begins to receive positive economic profit. New firms enter the industry, market supply shifts to the right, and with constant market demand, the price drops to the equilibrium level.

Thus, the process of entry and exit of firms will continue until a long-run equilibrium is established. It should be noted that in practice the regulatory forces of the market work better to expand than to contract. Economic profit and freedom to enter the market actively stimulate an increase in industry production volumes. On the contrary, the process of squeezing firms out of an overexpanded and unprofitable industry takes time and is extremely painful for the participating firms.

Basic conditions for long-term equilibrium

• Operating firms make the best use of the resources at their disposal. This means that each firm in the industry maximizes its profit in the short run by producing the optimal output at which MR=SMC, or since the market price is identical to marginal revenue, P=SMC.
• There are no incentives for other firms to enter the industry. The market forces of supply and demand are so strong that firms are unable to extract more than is necessary to keep them in the industry. those. economic profit is zero. This means that P=SATC.
• Firms in the industry cannot reduce total average costs in the long run and make a profit by expanding the scale of production. This means that to earn normal profits, a typical firm must produce a level of output that corresponds to the minimum of long-run average total costs, i.e. P=SATC=LATC.

In long-term equilibrium, consumers pay the minimum economically possible price, i.e. the price required to cover all production costs.

Market supply in the long run

The long-run supply curve of an individual firm coincides with the increasing portion of LMC above min LATC. However, the market (industry) supply curve in the long run (as opposed to the short run) cannot be obtained by horizontally summing the supply curves of individual firms, since the number of these firms varies. The shape of the market supply curve in the long run is determined by how prices for resources in the industry change.

At the beginning of the section, we introduced the assumption that changes in industry production volumes do not affect resource prices. In practice, there are three types of industries:

• with fixed costs;
• with increasing costs;
• with decreasing costs.

The market price will rise to P2. The optimal output of an individual firm will be Q2. Under these conditions, all firms will be able to earn economic profits, inducing other companies to enter the industry. The sectoral short-term supply curve moves to the right from S1 to S2. The entry of new firms into the industry and the expansion of industry output will not affect resource prices. The reason for this may be that resources are abundant, so that new firms will not be able to influence resource prices and increase the costs of existing firms. As a result, the LATC curve of a typical firm will remain the same.

Restoring equilibrium is achieved according to the following scheme: the entry of new firms into the industry causes the price to fall to P1; profits are gradually reduced to the level of normal profits. Thus, industry output increases (or decreases) following changes in market demand, but the supply price in the long run remains unchanged.

This means that a fixed cost industry looks like a horizontal line.

If an increase in industry volume causes an increase in resource prices, then we are dealing with the second type of industry. The long-term equilibrium of such an industry is shown in Fig. 4.9 b.

More high price allows firms to earn economic profits, which attracts new firms to the industry. The expansion of aggregate production necessitates an ever-increasing use of resources. As a result of competition between firms, prices for resources increase, and as a result, the costs of all firms (both existing and new) in the industry increase. Graphically, this means an upward shift in the marginal and average cost curves of a typical firm from SMC1 to SMC2, from SATC1 to SATC2. The firm's short-run supply curve also shifts to the right. The process of adaptation will continue until economic profit runs out. In Fig. 4.9, the new equilibrium point will be the price P2 at the intersection of the demand curves D2 and supply S2. At this price, a typical firm chooses a production volume at which

P2=MR2=SATC2=SMC2=LATC2.

The long-run supply curve is obtained by connecting the short-run equilibrium points and has a positive slope.

The analysis of long-term equilibrium of industries with decreasing costs is carried out according to a similar scheme. Curves D1, S1 are the initial curves of market demand and supply in the short term. P1 is the initial equilibrium price. As before, each firm reaches equilibrium at point q1, where the demand curve - AR-MR touches min SATC and min LATC. In the long run, market demand increases, i.e. the demand curve shifts to the right from D1 to D2. The market price increases to a level that allows firms to make an economic profit. New companies begin to flow into the industry, and the market supply curve shifts to the right. Expanding production volumes leads to lower prices for resources.

This is a rather rare situation in practice. An example would be a young industry emerging in a relatively undeveloped area where the resource market is poorly organized, marketing is at a primitive level, and the transport system functions poorly. An increase in the number of firms can increase the overall efficiency of production, stimulate the development of transport and marketing systems, and reduce the overall costs of firms.

Due to the fact that an individual company cannot control such processes, this kind of cost reduction is called external economy(eng. external economies). It is caused solely by industry growth and forces beyond the control of the individual firm. External economies should be distinguished from the already known internal economies of scale, achieved by increasing the scale of the firm’s activities and completely under its control.

Taking into account the factor of external savings, the total cost function of an individual firm can be written as follows:

TCi=f(qi,Q),

Where qi- volume of output of an individual company;

Q— the volume of output of the entire industry.

In industries with constant costs, there are no external economies; the cost curves of individual firms do not depend on the industry's output. In industries with increasing costs, negative external diseconomies take place; the cost curves of individual firms shift upward with increasing output. Finally, in industries with decreasing costs, there are positive external economies that offset the internal diseconomies due to diminishing returns to scale, so that the cost curves of individual firms shift downward as output increases.

Most economists agree that in the absence of technological progress, the most typical industries are those with increasing costs. Industries with decreasing costs are the least common. As industries grow and mature, industries with decreasing and constant costs are likely to become industries with increasing costs. On the contrary, technological progress can neutralize the rise in resource prices and even lead to their fall, resulting in the emergence of a downward-sloping long-term supply curve. An example of an industry in which costs are reduced as a result of scientific and technical progress is the production of telephone services.

Perfect competition

Model graph

Perfect, free or pure competition- an economic model, an idealized state of the market, when individual buyers and sellers cannot influence the price, but form it with their contribution of supply and demand. In other words, this is a type of market structure where the market behavior of sellers and buyers is to adapt to the equilibrium state of market conditions.

Signs of perfect competition:

• an infinite number of equal sellers and buyers
• homogeneity and divisibility of products sold
• no barriers to entry or exit from the market
• high mobility of production factors
• equal and full access of all participants to information (prices of goods)

In the case where at least one sign is missing, competition is called imperfect. In the case when these signs are artificially removed in order to occupy a monopoly position in the market, the situation is called unfair competition.

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

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

In a real economy, the exchange market most closely resembles a perfectly competitive market. In the course of observing the phenomena of economic crises, it was concluded that this form of competition usually fails, from which it is possible only through external intervention.

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See what “Perfect competition” is in other dictionaries:

Idealized state commodity market, characterized by: the presence on the market of a large number of independent entrepreneurs (sellers and buyers); the ability for them to freely enter and leave the market; equal access to... ... Financial Dictionary

- (perfect competition) An ideal state of the market in which there are many sellers and buyers with equal access to information, so that each of them can act as a person who agrees with a given price, and is ready to sell and receive any ... ... Economic dictionary

See Perfect competition Dictionary of business terms. Akademik.ru. 2001... Dictionary of business terms

PERFECT COMPETITION- (perfect competition) (Political Economy) the concept of a free market of an ideal type, in which (a) there are many buyers and many sellers, (b) commodity units are homogeneous, (c) the purchases of any buyer do not significantly affect the market... ... Large explanatory sociological dictionary

Perfect competition- 1) the functioning of the market mechanism in the presence of a large number of sellers, high quality goods, the absence of restrictions for new production in conditions of full awareness of consumers and producers about market conditions.… … Dictionary of Economic Theory

perfect competition- competition between manufacturers and sellers of goods, which takes place in the so-called ideal market, where there is an unlimited number of sellers and buyers of homogeneous goods who freely communicate with each other. Really like this... ... Dictionary economic terms

- (see IDEAL COMPETITION) ... Encyclopedic Dictionary of Economics and Law

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Perfect competition- a type of market characterized by the presence of a large number of sellers offering homogeneous products; each individual seller cannot have any influence on the market price of the product; free access to the market... Economics: glossary

Perfect competition- a type of competition in a market of homogeneous products, where there are many sellers and buyers, and none of them individually can influence market prices and does not have full knowledge of the state of the market... Dictionary of economic terms and foreign words

Books

• Set of tables. Economy. 10-11 grade (25 tables), . Human needs. Limitation economic resources. Factors of production. Types economic systems. Demand. Offer. Market equilibrium. Types of property. The company and its goals...

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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 of unfair competition in some countries is the giving of 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 the phenomena of economic crises, came to the conclusion that this form of competition usually fails, from which it is possible 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 of the market demand for a common type of product sold by the firm and its rivals;
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. An example would be the operators cellular communications 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.

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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, an infinitely 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 firm in conditions of 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 entities (companies, organizations, firms or individuals) in any segment of the economy with the aim of capturing the market and making 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

So that the same product has the same price different sellers at one 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.

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Introduction

Market pricing according to the laws of supply and demand, the formation of equilibrium market prices on this basis underlie the self-regulation of a market economy, its ability to solve economic problems more effectively than other systems.

But there are no countries where the state does not interfere in the market in any way. The problem of studying government intervention will be relevant as long as the market itself exists.

The purpose of this course work is to determine the role of the state in the market and the effectiveness of state pricing policies.

To achieve the goal, the following tasks were set:

1. consider the market of perfect competition and forms of price control by the state, their consequences;

2. consider a monopolistic market and determine the place of the state in this market;

3. compare the effects of government regulation of both markets and determine whether there are patterns of government policy regarding market structure.

Features of state regulation of prices in a perfectly competitive market

Market structure

The market is an objective phenomenon of the economy, known to every person, and yet the market is still difficult to give an exhaustive definition. The market is one of the most common categories in economic theory and business practice. Market how economic category is a set of specific economic relations and connections between buyers and sellers, as well as trade intermediaries regarding the movement of goods and money, reflecting the economic interests of subjects of market relations and ensuring the exchange of labor products. A market is a mechanism through which buyers and sellers interact to set prices and quantities of goods and services. The market today is considered as a type of economic relations between subjects of economic relations.

Market structure is the internal structure, location, order of individual market elements, their share in the total market volume; These are the conditions for market competition.

A necessary and most important element of the market is competition, which has different natures and forms in different markets and in different market situations. Competition is economic rivalry for the right to obtain a larger share of a certain type of limited resource. The advantage of competition is that it makes the distribution of limited resources dependent on the economic parameters of the competitors.

According to the conditions of market competition, there are perfect And imperfect competition.

Imperfect competition is usually divided into three main types: monopolistic competition, oligopoly, monopoly.

Features of a perfectly competitive market

In economic theory, perfect competition is a form of market organization in which all types of rivalry between both sellers and buyers are excluded. Thus, the theoretical concept of perfect competition is actually a negation of the usual understanding of competition in business practice and everyday life as intense rivalry between economic agents. Perfect competition is perfect in the sense that with such a market organization, each enterprise will be able to sell as many products as it wants at a given market price, and neither an individual seller nor an individual buyer will be able to influence the level of the market price.

We say that perfect competition prevails if the following conditions are met in the market:

1. The market consists of many competing sellers, each of whom sells standardized products to many buyers.

2. Each firm has a very small share of total output sold in the market, less than 1% of total sales for any given period of time.

3. Neither firm views competitors as a threat to its market share of sales. Firms are therefore not interested production solutions their competitors .

4. Pricing information , technology and likely profits are freely available, and it is possible to quickly respond to changing market conditions by shifting the resources used.

5. Market entry and exit from it is free for sellers of standardized goods . This means that there are no restrictions that prevent the company from selling goods on the market, and there are no difficulties in ceasing operations on the market.

A perfectly competitive market is a market where the conditions of perfect competition are satisfied. In a perfectly competitive market, buyers of standard products or services are indifferent to which company's products they choose. For example, the market for eggs is very likely to be competitive. Many sellers sell eggs every day. No farmer accounts for more than 1% of the market's daily sales. The first two of the above conditions of a perfectly competitive market ensure that no seller can influence the price of a product. An individual seller has a very small share of the total output; he is not able to change the supply on the market so that the price changes. Accordingly, sellers in a perfectly competitive market accept prices as given externally, that is, they are “price takers.”

This means that the price at which each firm sells its products is determined by forces beyond the firm's control. We are talking about the conditions of supply and demand in the market as a whole. Demand conditions under perfect competition for both an individual firm and the entire market are shown in Figure 1.

Let us assume that the equilibrium price P E is equal to $0.4 per pound of broiler, then the equilibrium quantity Q E amounts to 2 billion pounds annually. Part (b) of the figure shows what the market looks like from the point of view of an individual producer. Range possible options the volume of output from the point of view of the company has a dimension expressed not in billions of pounds, but in thousands. This range is so small that whether a firm produces 10,000, 20,000, or 40,000 pounds of chicken per year will have little effect on aggregate demand. A change of £10,000 is so small that it cannot be seen on graphs of market supply and demand, which are on a much larger scale. As for an individual firm, it is obvious that the demand curve for its products is completely elastic (horizontal) at the market price, although, from the point of view of the market as a whole, the demand curve has a completely normal negative slope.

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