Perfect competition examples. Types of market structures: perfect competition, monopolistic competition, oligopoly and monopoly What is sold in a perfectly competitive market

Market perfect competition 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 activity in this industry, significant initial capital investments are not required, positive economies of scale are extremely insignificant and do not prevent new firms from entering the industry, there are no government intervention into 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 profit;
• 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 perfect competition, the prevailing market price is determined by 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 the homogeneity of products and the presence of a large number of perfect substitutes, no firm can sell its goods at a price even slightly higher than the equilibrium price, Pe. 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 structure, but in 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 a positive income in the short term economic profit;

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. Let us determine the volume at which the average variable costs 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.

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

Concept and types of market structures

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

Key characteristics of types of market structures:

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

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

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

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

A table with a comparative analysis of the main types of market structures is shown below.

Table of main types of market structures

Perfect (pure, free) competition

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

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

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

Features or conditions of perfect competition:

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

Monopolistic competition

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

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

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

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

Features or features of monopolistic competition:

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

Oligopoly

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

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

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

Features or oligopoly conditions:

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

Pure (absolute) monopoly

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

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

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

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

Special varieties or types of monopoly:

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

Features or monopoly conditions:

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

Galyautdinov R.R.

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Imperfect competition– an economic phenomenon, a market model in which manufacturing firms have the opportunity to have a real influence on the price of a product. On the other hand, there is the concept of perfect competition. This economic model is a system characterized by an infinite number of buyers and sellers, homogeneous and divisible products, high mobility of production resources, equal and complete information access of all participants to the price of products, goods, and the absence of any barriers to entry and exit to the market. Violation of at least one of these conditions theoretically means imperfect competition.

It is clear that achieving the conditions pure competition almost impossible, while imperfect competition is a widespread phenomenon.

Imperfect competition as an economic phenomenon

Based on the properties inherent in the conditional model of perfect competition, it is possible to determine what features are inherent in imperfect competition and how they manifest themselves in real market conditions.

This structure is characterized by various kinds of barriers that limit entry into and exit from a certain market sector. There are restrictions on product price information. The product itself is either unique, or its properties are differentiated compared to others, which leads to the ability of manufacturers and sellers to control prices for it: to inflate it, to keep it at a certain level. The goal is to maximize profits.

A striking example of imperfect competition are natural monopolies - firms whose activities are related to the supply of energy resources (electricity, gas) to the population. With low costs, such monopolists can set any price for their products in the future, but the entry barriers to this market for new firms are insurmountably high.

The characteristic features of market relations under imperfect competition are thus defined quite firmly:

1. Monopolies, small and medium business are present on the market at the same time. They compete with each other, but monopolists, to one degree or another, have an advantage by regulating prices. This applies to both buyers and sellers of the product.
2. Imperfect competition in the future is aimed at monopolizing the market (sales, raw materials, market work force etc.), in contrast to perfect, which is characterized by the main goal - the sale of goods.
3. The process of competition captures not only sales markets (retail, wholesale), but also production. Innovative developments in the manufacturing sector are becoming a method of fighting competitors. The purpose of their implementation is to reduce production costs.
4. Various methods of competition are used: from the use of price levers, as the most obvious, to non-price ones, aimed at improving the properties of the product, improving marketing and advertising policies. Non-economic methods are also used, which are usually classified as unfair competition.

Forms of struggle for markets with imperfect competition have the following characteristics:

• price– reduction in prices for products, reduction in costs in the production and sales process, manipulation of pricing, price maneuvers designed to attract buyers;
• non-price– emphasis on product quality, attracting customers through various promotions, offering more goods or services for the same price, non-standard advertising campaigns;
• non-economic– industrial, economic espionage, bribery of responsible persons, etc.

Imperfect competition in all its diversity was considered in the works of E. Chamberlin, J. Hicks, J. Robinson, A. Cournot.

Forms of imperfect competition

Oligopoly characterized by a fairly limited number of sellers of goods or services (communication services market). Oligopsony— a fairly limited number of buyers (the labor market in small towns). At monopolies There is only one seller on the market (gas supply). At monopsony— the only buyer (sale of heavy weapons).

At monopolistic competition There are a large number of manufacturers and sellers in the market sector, selling similar in properties, but not identical goods (most often found in retail trade, consumer services sector).

Experts conduct comparative analysis these forms in the context of four market factors:

• number of sellers (manufacturers);
• market product differentiation;
• opportunities to influence prices;
• entry-exit barriers.

For example, in the case of a monopoly, there is only one quantitative indicator, prices are completely controlled, products have unique qualities, and barriers to entry into the market are very high, etc.

Labor market

Imperfect competition in the labor market is a complex phenomenon that includes several important factors. Note that this market sector is most susceptible to regulation in order to minimize the negative consequences of an “imperfect market”.

Regulating factors of the labor market:

1. State. Legislatively regulates the level wages, preventing it from completely falling under the influence of market processes (income indexation, establishing a minimum wage, etc.).
2. Trade union organizations. Direct efforts to increase the level of wages for workers in the industry and region, prepare and carry out the signing of agreements between trade unions and employers - market participants, in the indicated direction.
3. Large firms, corporations. They set the level of remuneration for specialists, which they retain for a long time. Not interested in frequent revision of employee pay levels.

Market laws in relation to the labor market work in a special way. The sale of labor, skills and abilities is usually secured by a long-term employment contract, which provides job security to the employee, despite fluctuations in supply and demand. In addition, individual employment contract or the agreement cannot contain conditions worse than those enshrined in the collective agreement or labor legislation.

In this case, the seller receives job guarantees and is removed from market relations for the duration of the contract with the buyer.

The presence of restrictions on worse conditions in comparison with a collective agreement does not allow the employer to endlessly worsen the conditions of individual agreements by choosing the most “accommodating” sellers. This factor is most significant if there is no trade union organization.

Imperfect competition and government regulation

Imperfect competition, being far from ideal models for building an economy, has its negative aspects and consequences: rising prices for products that are not justified by increased costs, an increase in production costs themselves, inhibition of progressive trends, a negative impact on competitiveness on the scale of world markets, and finally, inhibition of development economy.

At the state, government level, there are always administrative barriers for market participants, for example, exclusive rights that the state grants to a particular company.

On a note! Regulatory barriers can be expressed not only in government regulation as such, but also in the possession of the right to rare natural resources, progressive scientific, technical developments, confirmed by patent, high level starting capital required to enter the market sector.

At the same time, the state, realizing the global danger of market monopolization, is fighting it. Antimonopoly regulatory measures are a package of antimonopoly legislation that is constantly being improved and takes into account market trends. On the basis of it, administrative antimonopoly control of markets is carried out by authorized state antimonopoly structures. An effective mechanism for influencing monopolists is being developed.

Control is represented by a set of financial sanctions, the organizational mechanism does not affect the monopolists themselves, destroying them as a market phenomenon, but indirectly - by supporting small and medium-sized businesses, reducing customs duties etc. Legislative regulation often directly prohibits certain economic steps that contribute to the formation of even larger monopolies, for example, the merger of large firms in a certain market sector.

Results

1. Imperfect competition, as opposed to a perfect, ideal model, exists in real market structures modern economy. The goal of imperfect competition is to capture the market and monopolize it.
2. Forms of imperfect competition differ in the number of buyers and sellers in a given market sector. You can conduct a comparative analysis of each form, paying attention to the level of barriers to entry into the market, the ability to influence prices, etc.
3. The labor market in conditions of imperfect competition is subject to many regulatory factors from the state, trade unions, and large companies.
4. The presence of an employment agreement leads to the temporary withdrawal of the seller from the labor market and allows him to be guaranteed stable employment, i.e. demand labor resources which he possesses.

TOPIC 7. PERFECT COMPETITION

7.2. Principal options for a company's behavior in the short term

7.2.1. Profit maximization as the main motive of the company’s behavior

7.2.2. Three options for a company's behavior

7.3. Rule of equality of marginal cost and marginal revenue (MC = MR)

7.4. Supply curve and market equilibrium in a competitive industry

7.5. Dynamics of profit and supply volume in the long term. Perfect competition and economic efficiency

7.5.1. Profit level as a regulator of resource attraction

7.5.2. Perfect competition and economic efficiency

7.1. Features of a perfectly competitive market

7.1.1. Competition conditions and market type

The behavior of a company and its choice of production volumes depend on the type of market in which it operates.

The most powerful factor dictating the general conditions for the functioning of a particular market is the degree of development of competitive relations in it.

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

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

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

According to the degree of development of competition, economic theory distinguishes four main types of markets:

Þ Perfectly competitive market

monopolistic competition

· oligopoly,

· monopoly.

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

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

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

Conditions of perfect competition

The market model of perfect competition (SC) is based on four main conditions (see diagram 7.1.).

Let's consider them sequentially.

Þ In order for competition to be perfect, the goods offered by firms must meet the condition uniformity products. This means that the products of firms in the minds of buyers are homogeneous and indistinguishable, that is, the products of different enterprises are completely interchangeable1 (they are complete substitute goods).

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

Þ Further, with perfect competition, neither sellers nor buyers influence the market situation, due to a little And multiplicity all market entities. Sometimes both these sides of perfect competition are combined, speaking of atomic structure market. This means that there are a large number of small sellers and buyers in the market, just as any drop of water is made up of a gigantic number of tiny atoms.

At the same time, the purchases made by the consumer (or sales by the seller) are so small compared to the total volume of the market that the decision to reduce or increase their volumes does not create either surpluses or shortages. The total size of supply and demand simply “does not notice” such small changes.

Þ All of the above restrictions (homogeneity of products, large number and small size of enterprises) actually predetermine that With perfect competition, market participants are unable to influence prices. Therefore, it is often said that in perfect competition, each individual seller "takes the price," or is price taker(price-taker).

Þ The next condition for perfect competition is absence of barriers to entry and exit from the market. The fact is that when such barriers exist, sellers (or buyers) begin to behave as a single corporation, even if there are many of them and they are all small firms.

On the contrary, typical for perfect competition no barriers or freedom to enter to the market (industry) and leave it means that resources are completely mobile and move without problems from one activity to another. On the other hand, there are no difficulties with stopping operations on the market. Conditions do not force anyone to remain in the industry if it is not in their best interests. In other words, the absence of barriers means absolute flexibility and adaptability of a perfectly competitive market.

Þ The final condition for a perfectly competitive market to exist is that information about prices, technology, and likely profits is freely available to everyone. Firms have the ability to quickly and efficiently respond to changing market conditions by moving the resources they use. There are no trade secrets, unpredictable developments of events, or unexpected actions of competitors. That is, decisions are made by the company in conditions of complete certainty regarding the market situation or, what is the same, in the presence perfect information about the market.

7.1.2. The meaning of the concept of perfect competition

Abstractness of the concept of perfect competition

All four of the above conditions are so stringent that they can hardly be met by any really functioning market. Even markets that most resemble perfect competition only partially satisfy them.

For example, the world's stock (securities market) and commodity (commodity) exchanges very fully satisfy the first assumption, but only barely correspond to the second and third conditions. And none of them satisfies the condition of perfect awareness (knowledge).

For all its abstractness, the concept of perfect competition plays an extremely important role in economic science.

Firstly, The model of a perfectly competitive market makes it possible to judge the principles of operation of many small firms selling standardized homogeneous products, and, therefore, operating in conditions close to perfect competition.

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

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

7.1.3. Perfect competition criterion

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

IN economic theory, as in physics, there are different kinds of abstractions. Abstraction is something that does not exist in nature in its “pure form”. But the introduction and study of abstract concepts helps to study real objects, processes and phenomena close to them. So, from the school physics course we know about the “material point” and the “absolutely solid body”.

An example of an abstract concept in economics is pure or perfect (absolute) competition.

What is pure competition

Perfect competition is a model of economic functioning in which neither sellers nor buyers influence the price, but only contribute to its formation through the mechanisms of supply and demand. In other words, both parties, the seller and the buyer, adapt to the equilibrium state of the market.

With perfect competition, there are many buyers and sellers in the market and there is no monopoly at all.

Firms enter and exit the market completely freely, and information about the price of a product is available to any market participant. Sellers and buyers depend on how the market will develop. In order to maximize profits, sellers have to improve and use the achievements of scientific and technological progress not only in the process of direct production of products, but also when selling them.

The use of advanced technologies will inevitably lead to a reduction in costs, and therefore increase the profit of the enterprise.

We list the main properties:

• homogeneity, divisibility of products. The product of one seller may well be replaced by the products of another;
• a huge number of sellers - the entire market demand is covered not by a few firms (oligopoly) or one (monopoly), but by hundreds and even thousands of similar enterprises;
• high degree of mobility production factors. Neither manufacturers, nor sellers, much less the state, influence price formation. The cost of goods depends solely on three factors: production costs, supply and demand;
• absence of barriers to entry into the market or, conversely, to exit it. This feature should be understood as follows: to begin with entrepreneurial activity businesses do not require licenses or permits. Such enterprises are, for example, shoe repair shops, tailor shops, etc.;
• all market participants have equal access to information about the price of goods.

Pure competition is characterized by the presence of all of the above characteristics.

Otherwise, competition is called imperfect. One example of imperfect competition is bribing officials for preferences and lobbying.

In conditions of absolute competition, one global trend is observed - a decrease in the profit of each seller. Perfect competition in its pure form does not exist anywhere. If pure competition were introduced into practice, it would quickly lead to market decline. Thus, enterprises operating in the market will sooner or later modernize their production base.

But, despite this, the price will continue to decline - competitors will “take bread” from each other, conquering a larger market. In such conditions, income will quickly give way to losses and the situation can only be saved with the help of external intervention (for example, government regulation).

Examples

Despite the fact that in its “pure form” market competition is not found anywhere, this market model can be used to describe the functioning of small firms - car repair shops, photo studios, construction crews, stalls, etc. All these enterprises are united by approximately the same cost of production, the scale of activity is negligible compared to the size of the entire market, a huge number of competitors, the forced need to accept the “rules of the game” formed by the participants in this industry.

The opposite of perfect competition is monopoly.

For example, the absolute monopolist of the Russian gas sector is Gazprom. Monopolies have a negative impact on the market, since such firms do not need to invest money in their development. Anyway, no one has other similar products - they will buy the products under any conditions.

Usually the real market operates in some intermediate form - there are several large players, the rest of the share is distributed among small enterprises.

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