Competition is important in the life of society. It stimulates the activities of business units. Through competition, commodity producers seem to control each other. Their struggle for the consumer leads to lower prices, lower production costs, and improved product quality.
Also, it should be noted that market competition contributes to a more efficient use of resources in the production of goods necessary for society. Those. the industry involves resources in production exactly in the volume that is necessary to cover effective demand.
In addition, the advantage of competition is that it creates conditions for the optimal use of scientific and technical achievements in the field of creating new types of goods, introducing new equipment and technology, and developing more advanced methods of organizing and managing production.
Competition aims producers at satisfying various needs and at improving the quality of goods and services.
The undoubted advantage of competition is that it necessitates a flexible response and rapid adaptation of producers to changing production conditions, and also ensures freedom of choice and action for consumers and producers.
The combination of these advantages makes perfect competition one of the most effective types of markets. It is the perfectly competitive market that regulates social production.
Perfect competition, like the market economy as a whole, has a number of disadvantages. Speaking about the fact that perfect competition ensures the efficient distribution of resources and maximum satisfaction of customer needs, we should not forget that it comes from solvent needs, from the distribution of monetary income that developed earlier. This creates equality of opportunity, but does not guarantee equality of results. Perfect competition takes into account only those costs that pay off. However, in conditions of insufficient specification of property rights, there are benefits (costs) that are not taken into account by firms: they are realized by society.
In this case, we talk about external external benefits or costs (positive or negative externalities). Therefore, in conditions of insufficient specification of property rights, underproduction of positive and overproduction of negative externalities is possible.
Perfect competition does not provide for the production of public goods, which, although they bring satisfaction to consumers, cannot be clearly divided, valued and sold to each consumer separately (piece by piece).
Perfect competition, which involves a huge number of firms, is not always able to provide the concentration of resources necessary to accelerate scientific and technological progress.
Thus, despite all its advantages, a perfectly competitive market cannot be idealized. Small-sized enterprises operating on the market cannot compete with large-scale enterprises saturated with modern technology.
Now about the advantages and disadvantages of a monopoly. The study of the patterns of market behavior of monopolies gives grounds to assert that monopolies as economic organizations play a significant role in the socio-economic development of any country.
It must be recognized that a monopolist may have advantages in production and distribution costs due to economies of scale and innovation. Indeed, the expansionist behavior characteristic of monopoly companies carries with it the potential for economic growth. In addition, a monopoly can reduce costs in cases where a significant level of concentration is conducive to or necessary to achieve full economies of scale.
Typically, a monopoly company (especially if it is a vertically integrated structure) can also achieve significant transaction cost advantages. A huge monopoly is able to reduce administrative costs, costs for various types of agreements and for concluding contracts between individual production divisions, combining into its structure adjacent stages of product manufacturing, R&D, sales, customer service, etc. Obviously, as a result of this tendency to By combining efforts, a significant economic effect is achieved.
Huge monopolistic associations make a significant contribution to the country's GDP and ensure the competitiveness of the national economy. And this is also an indisputable fact.
The basis for maintaining a monopoly is flexibility. The presence of a combination of potential competition factors determines the unstable nature of modern monopolies. The dynamism of market development, changes in its structure caused by scientific and technical progress, intensification of diversification processes, intensification of inter-industry and interstate expansion of capital, globalization of the economy limit the monopoly power of companies. Therefore, the monopolist is forced to show high mobility, timely adapt to spontaneous market processes, submit to their dictates, rebuild depending on changes in market demand, and act in accordance with the requirements of a changing competitive environment. Of course, in this sense, small monopolists have an advantage over giant companies: it is easier for the former to achieve flexibility due to being as close as possible to consumers of their own products.
Today, there is no longer any doubt or objection to the fact that a monopolist firm can be more innovatively active than a firm operating in a competitive industry. The high innovative activity of the monopolist is due to ample opportunities for large-scale financing, significant scientific and technical potential, and a combination of economic, technological, and organizational factors necessary for the implementation of discoveries and innovations. However, it is not only opportunities that stimulate a monopolist to introduce innovations. Today, innovation for a monopoly is both the basis, condition and guarantee of maintaining a monopoly position. The point is that: 1) innovation ensures the preservation and growth of super-profits of monopolies; 2) technological innovations are a necessary condition for maintaining sustainable competitive advantages and maintaining leadership, and also serve as a means of global competition for the largest TNCs; 3) innovation is one of the means of creating strategic barriers to entry for potential competitors into the industry.
Monopoly firms have significant investment potential. The investment capabilities of monopoly firms and their propensity to invest are much higher than those of other market participants. One source of investment is monopoly profits, which such firms tend to invest in research, thanks to which they are always able to stay ahead of their rivals or at least stay at their level.
It should be noted that the products of the monopolies are of high quality, which allowed them to gain a dominant position in the market.
As for the disadvantages, the main one is that monopolies have market power to obtain monopoly profits. This leads to the disappearance of the desire of monopolistic producers to reduce production costs. This means that there will be no reason to reduce prices for consumers.
To maintain their monopoly position, monopolies establish barriers to entry into the market, which reduces the level of competition in the country's economy.
The activities of monopolies enhance income differentiation (the incomes of the bulk of consumers fall, which has a negative impact and leads to a decrease in the profits of monopolists, i.e. the market power of monopolists is weakened), which is fraught with socio-political conflicts and instability. In addition, the possibility arises of merging the power of monopolies with the power of the state and contributes to the emergence of oligarchic structures (their power will correspond to their personal interests, and not to the common good).
Anna Sudak
Bsadsensedinamick
#
Business nuances
Types and characteristics of monopolistic competition
A striking example of this type of competition in Russia is the mobile communications market. There are many companies in it, each of which is trying to lure clients to them through various promotions and offers.
Article navigation
- Market of monopolistic competition
- Signs of monopolistic competition
- Product differentiation
- Advantages and disadvantages of monopolistic competition
- Conditions for obtaining the maximum possible profit in the short-term period of monopolistic competition
- Maximum profit in the long run of monopolistic competition
- Efficiency and monopolistic competition
Monopolistic competition (MC) is one of the market structures with a large number of enterprises that produce differentiated products and control their cost for the end consumer. Although this market model refers to imperfect competition, it is very close to perfect competition.
To put it simply, MK is a market (a separate industry) that brings together many different companies that produce similar products. And each of them has a monopolist over its product. That is, the owner who decides how much, how, for how much and to whom to sell.
Market of monopolistic competition
This definition, or rather the basis of the concept itself, was presented back in 1933 in his book “The Theory of Monopolistic Competition” by Edward Chamberlin.
To properly characterize this market model, Let's look at this symbolic example:
The consumer likes Adidas sneakers and is willing to pay more money for them than for competitors' products. After all, he knows what he pays for. But suddenly the company that produces his favorite shoes raises prices three, five, eight... times. At the same time, similar shoes from another company are several times cheaper.
It is clear that not all Adidas fans can afford this expense and will look for other, more profitable options. What happens next? The company's customers are slowly but surely migrating to competitors who are willing to carry them in their arms and give them what they want for the price they can pay.
Let's figure out what MK really is. Let's try to convey it briefly. Yes, of course, the manufacturer has some power over the product he produces. However, is this so? Not really. After all, a monopolistic market model means a huge number of producers in each niche, which may turn out to be faster, more efficient and of better quality.
An unreasonably high cost of goods that satisfy the same need can either play into the hands or ruin the manufacturer. Moreover, competition in niches is becoming tougher. Anyone can enter the market. It turns out that all companies are sitting on a powder keg, but it can explode at any moment. So firms have to act in conditions of monopolistic competition using their full potential.
Signs of monopolistic competition
- The market is divided between companies in equal parts.
- The products are of the same type, but are not a complete replacement for anything. It has common features, similar characteristics, but also significant differences.
- Sellers set a price tag without taking into account the reaction of competitors and production costs.
- The market is free to enter and exit.
In fact, MK includes signs of perfect competition, namely:
- A large number of manufacturers;
- Failure to take into account competitive reactions;
- No barriers.
The monopoly here is only regulation of the price of products for the end user.
Product differentiation
At the beginning of the article, we already said that under monopolistic competition, manufacturers sell differentiated products. What is it? These are products that satisfy the same user need, but have some differences:
- quality;
- manufacturing materials;
- design;
- brand;
- technologies used, etc.
Differentiation is a marketing process used to promote products in the market, increase their value and brand equity. In general, this is a tool for creating competitiveness between manufacturers of certain things.
Why is a differentiation strategy useful? Because it makes it possible for absolutely all companies on the market to survive: both “established” enterprises and new companies that create products for a specific target audience. The process reduces the impact of resource endowment on companies' market share.
For stable operation, it is enough for an enterprise to determine its strengths (competitive advantage), clearly identify the target audience for which the product is being created, identify its need and set an acceptable price for it.
The direct function of differentiation is the reduction of competition and production costs, difficulty in comparing products and the opportunity for all manufacturers to take their “place in the sun” in the chosen niche.
Advantages and disadvantages of monopolistic competition
Now let’s look at the “medal” from both sides. So, in any process there are both advantages and disadvantages. MK was no exception.
| Positive | Negative |
| A huge selection of goods and services for every taste; | Advertising and promotion costs are increasing; |
| The consumer is well informed about the benefits of the product items he is interested in, which gives him the opportunity to try everything and choose something specific; | Overcapacity; |
| Anyone can enter the market and bring their ideas to life; | A huge amount of unreasonable expenses and ineffective use of resources; |
| New opportunities, innovative ideas and a constant source of inspiration for large corporations. The emergence of competitors spurs large companies to make better products; | “Dirty” tricks are used, such as pseudo-differentiation, which makes the market less “plastic” for the consumer, but brings super-profits to the manufacturer; |
| The market does not depend on the state; | Advertising creates unreasonable demand, due to which it is necessary to rebuild the production strategy; |
Conditions for obtaining the maximum possible profit in the short-term period of monopolistic competition
The goal of any enterprise is money (gross profit). Gross profit (Tp) is the difference between total revenue and total costs.
Calculated by the formula: Тп = MR - MC.
If this indicator is negative, the enterprise is considered unprofitable.
In order not to go broke, the first thing a seller needs to do is understand what volume of products to produce to obtain maximum gross profit, and how to minimize gross costs. In this scenario, under what conditions will the company receive maximum earnings in the short term?
- By comparing gross profit with gross costs.
- By comparing marginal revenue with marginal cost.
These are two universal conditions that are suitable for absolutely all market models, both imperfect (with all its types) and perfect competition. Now let's start the analysis. So, there is a market with crazy competition and an already formed price for the product. The company wants to enter it and make a profit. Quickly and without unnecessary nerves.
To do this you need:
- Determine whether it is worth producing products at this price.
- Determine how much product you need to produce to be profitable.
- Calculate the maximum gross profit or minimum gross costs (in the absence of profit) that can be obtained by producing the selected volume of output.
So, based on the first condition, where revenue is greater than costs, we can argue that the product needs to be produced.
But not everything is so simple here. The short term has its own characteristics. It divides gross costs into two types: fixed and variable. The company can bear the first type even in the absence of production, that is, be in the red by at least the amount of costs. In such conditions, the enterprise will not see any profit at all, but will be “covered” by a wave of constant losses.
Well, if the amount of the total loss in the production of a certain amount of goods is less than the costs of “zero production,” the production of products is 100% economically justified.
Under what circumstances is it profitable for a company to produce in the short term? There are two of them. Again…
- If there is a high probability of making a gross profit.
- If the sales profit covers all the variables and part of the fixed costs.
That is, the company must produce enough goods so that revenue is maximum or loss is minimal.
Let's consider three cases to compare gross profit with gross costs (the first condition for obtaining maximum profit in the shortest possible time):
- profit maximization;
- minimizing production costs;
- closure of the company.
Profit maximization:
Three in one. Maximizing profits, minimizing losses, closing the company. The diagram looks like this:
Let's move on to comparing marginal revenue (MR) with marginal costs (MC) (the second condition for obtaining maximum profit in the short term):
MR = MC is the formula that determines the equality of marginal revenue with marginal cost.
This means that the product produced gives maximum profit with minimum costs. Characteristics of this formula are:
- High income at minimal costs;
- Profit maximization in all market models;
- In some cases, production price (P) = MS
Maximum profit in the long run of monopolistic competition
A distinctive feature of the long-term period is the absence of costs. This means that if the company ceases to function, it will not lose anything. Therefore, by default there is no such concept as “loss minimization”.
Playing according to this scenario, the monopolist chooses one of the following lines of behavior:
- profit maximization;
- limits on price formation;
- rent.
To determine the behavior of an enterprise, two approaches are used:
- Long-term total revenue (LTR) = long-term total cost (LTC).
- Long-run marginal revenue (LMR) = long-run marginal cost (LMC).
In the first case, total expenses are compared with total income in various variations of the production of a good and its price. The option where the difference between income and investments is maximum is the optimal behavior for the enterprise.
Concept of product differentiation
Since monopolistic competition is characterized by product differentiation, I will look at this concept in more depth.
Product differentiation arises due to the existence of the following differences between market segments:
1) Quality. It is not a one-dimensional characteristic, that is, it does not boil down to whether the product is good or bad. Even the simple consumer properties of the simplest products are surprisingly varied. For example, toothpaste should:
Clean your teeth (of course - it’s toothpaste);
Disinfect the oral cavity;
Strengthen tooth enamel;
Strengthen gums;
Be pleasant to the taste, etc.
And all these properties can only be combined in one product as an exception. In many cases, a gain in one product attribute leads to a loss in another. Therefore, prioritizing the main consumer qualities of a product opens up opportunities for a wide variety of products. And they all become unique in their own way and find their consumer - occupy their niche in the market.
2) Imaginary quality. Moreover, imaginary qualitative differences between them can serve as the basis for product differentiation. It has long been known, in particular, that a significant percentage of smokers in test tests are unable to distinguish “their” brand from others, although in ordinary life they faithfully buy only this brand. Let us pay special attention to this circumstance: from the point of view of consumer market behavior, it does not matter whether the products really differ. The main thing is that it seems so to him.
3) Terms and services. Differences in service unite the second (after quality) group of product differentiation factors. The fact is that a wide group of products, especially technically complex consumer goods for industrial purposes, are characterized by a long-term nature of interaction between the seller and the buyer. An expensive car must work properly not only at the time of purchase, but throughout its entire service life. The full service cycle includes service at the time of purchase and pre-sales service. Each of these operations can be performed to a different extent (or not performed at all). As a result, one and the same product seems to be decomposed into a whole range of varieties that differ sharply in their service characteristics and therefore seem to turn into completely different goods.
Thirdly, it contributes to the formation of new needs.
Fourth, advertising creates product differentiation where there is no real difference between them. As already noted, in the cigarette market many qualitative differences are imaginary. So, behind imaginary differences in quality, real differences in the advertising presentation of a product are often hidden, although the consumer may not be aware of this.
To summarize, I can say that product differentiation provides firms with certain monopolistic advantages. But this situation has another interesting side. Entry into a monopolistically competitive market is not blocked by any barriers, with the exception of barriers related to product differentiation. In other words, product differentiation not only creates advantages for the company, but also helps to avoid being bullied by competitors: it is not so easy to replicate the subtle taste of a fine liqueur or at least an equivalent response to a successful advertising campaign.
Advantages and disadvantages of monopolistic competition
Monopolistic competition has its advantages and disadvantages.
The advantages of monopolistic competition include:
Product differentiation expands consumer choice;
Strong competition keeps prices to the level of marginal costs, which are at the minimum possible level for differentiated products (albeit slightly higher than in a perfectly competitive market);
The bargaining power of an individual firm is relatively small, so firms mostly obtain rather than set prices;
This is the most favorable market for buyers.
As a rule, firms operating in conditions of monopolistic competition are small, both relatively and absolutely. The size of firms is severely limited by the rapid emergence of diseconomies of scale (diseconomies of scale). And if existing firms fully exploit the possibilities of economies of scale, then industry supply will increase due to the entry of new firms into the industry, and not due to the expansion of the activities of old ones.
The small size determines the main disadvantages of this market model:
Instability of market conditions and uncertainty of small business. If market demand is weak, this can lead to financial losses, bankruptcy, and exit from the industry. If market demand is strong, then this increases the influx of new firms into the industry and limits the receipt of profits above normal by existing ones;
Small size and rigid market forces limit the financial capacity to take risks and undertake R&D (research and development) and innovation activities (since R&D requires a sufficiently high minimum enterprise size). While there are exceptions (the Apple personal computer was first developed in a garage), most small firms are not technologically advanced or innovative.
product differentiation expands consumer choice;
strong competition keeps prices close to marginal costs, which are at the lowest possible level for differentiated products (albeit slightly higher than in a perfectly competitive market);
the bargaining power of an individual firm is relatively small, so that firms mostly obtain rather than set prices;
This is the most favorable market for buyers.
Disadvantages of the monopolistic competition market:
As a rule, firms operating in conditions of monopolistic competition are small, both relatively and absolutely. The size of firms is strictly limited by the rapid emergence of diseconomies of scale in production (diseconomies of scale in production). And if existing firms fully exploit the possibilities of economies of scale, then industry supply will increase due to the entry of new firms into the industry, and not due to the expansion of the activities of old ones.
The small size predetermines the main disadvantages of this market structure.
Instability of market conditions and uncertainty of small business. If market demand is weak, this can lead to financial losses, bankruptcy, and exit from the industry. If market demand is strong, this increases the flow of new firms into the industry and limits the earning of higher than normal profits by existing ones.
Small firm sizes and harsh market forces limit financial opportunities for risk and R&D and innovation activity (since R&D requires a fairly high minimum enterprise size). While there are exceptions (the Apple personal computer was first developed in a garage), most small firms are not technologically advanced or innovative.
Question. 4. The behavior of a company in an oligopoly
In an oligopoly, large firms can behave in different ways: do not take into account the behavior of other producers, as in perfect competition; try to anticipate the behavior of other manufacturers; collude with other manufacturers (in many countries this is illegal). Large enterprises in an oligopoly can use four options for forming market prices.
Firstly, various competing prices. Each of the dominant firms can raise or lower the price without paying attention to the others.
Secondly, rigid monopoly prices based on an explicit or secret cartel agreement.
Thirdly, leading monopoly price, when firms wait for the price of one of the existing firms to set and follow it.
Fourthly, a systematically formed price, the basis of which is the average production costs of large manufacturers.
The first attempt to create the theory of oligopoly was made by the French mathematician, philosopher and economist Antoine Augustin Cournot (1801-1877) back in 1838. However, his book, which outlined this theory, went unnoticed by his contemporaries. In 1863, he published a new work, “Principles of the Theory of Wealth,” where he outlined the old provisions of his theory, but without mathematical proof. Only in the 70s. XIX century followers began to develop his ideas.
The Cournot model assumes that there are only two firms in the market and each firm takes its competitor's price and output unchanged and then makes its decision. Each of the two sellers assumes that its competitor will always keep its output stable. The model assumes that sellers do not learn about their mistakes. In fact, these sellers' assumptions about the competitor's reaction will obviously change when they learn about their previous mistakes.
The Cournot model is shown in Fig. 10.10.
Rice. 10.10. Cournot duopoly model
Let us assume that duopolist 1 starts production first and at first turns out to be a monopolist. His output (Fig. 10.10) is q1, which at price P allows him to extract maximum profit, because in this case MR = = MC = 0. For a given output volume, the elasticity of market demand is equal to one, and total revenue will reach a maximum. Then duopolist 2 begins production. In his view, the output volume will shift to the right by the amount Oq1 and align with the line Aq1. He perceives segment AD" of the market demand curve DD as the residual demand curve, which corresponds to his marginal revenue curve MR2. The output of duopolist 2 will be equal to half of the demand unsatisfied by duopolist 1, i.e. segment q1D", and the value of its output is equal to q1q2, which will give opportunity to get maximum profit. This output will be a quarter of the total market volume demanded at zero price, OD"(1/2 x 1/2 = 1/4).
At the second step, duopolist 1, assuming that the output of duopolist 2 remains stable, decides to cover half of the remaining unsatisfied demand. Based on the fact that duopolist 2 covers a quarter of market demand, the output of duopolist 1 at the second step will be (1/2)x(1-1/4), i.e. 3/8 of the total market demand, etc. With each subsequent step, the output of duopolist 1 will decrease, while the output of duopolist 2 will increase. Such a process will end with a balancing of their output, and then the duopoly will reach a state of Cournot equilibrium.
Many economists considered the Cournot model to be naive for the following reasons. The model assumes that duopolists do not draw any conclusions from the fallacy of their assumptions about how competitors will react. The model is closed, i.e. the number of firms is limited and does not change in the process of moving towards equilibrium. The model says nothing about the possible duration of this movement. Finally, the assumption of zero transaction costs seems unrealistic. Equilibrium in the Cournot model can be depicted through response curves showing the profit-maximizing levels of output that will be produced by one firm, given the output levels of a competitor.
In Fig. 10.11. response curve I represents the profit-maximizing output of the first firm as a function of the output of the second. Response curve II represents the profit-maximizing output of the second firm as a function of the output of the first.
Rice. 10.11. Response curves
Response curves can be used to show how equilibrium is established. Following the arrows drawn from one curve to the next, starting with output q1 = 12,000, will result in a Cournot equilibrium at point E, at which each firm produces 8,000 units. At point E, two response curves intersect. This is the Cournot equilibrium.
Unlike the Cournot model, in which both firms are equal players in the market, in the Stackelberg model one of them (leader I) is active, and the other (follower II) is passive. The follower gives the leader the opportunity to be the first to offer the desired quantity of goods on the market and considers the remaining unsatisfied industry demand as his market share.
This relationship between competitors may arise due to the asymmetric distribution of information: the leader knows the cost function of the follower, while the follower is not aware of the leader's production capabilities.
In such a situation, firms do not need to make strategic decisions. The leader's profit depends only on his output volume, since the follower's output volume is given by the equation of his reaction: q II = q II ( q I).
To visually compare the Cournot equilibrium with the Stackelberg equilibrium, the reaction lines of duopolists need to be supplemented with lines of equal profit (isoprofits). The isoprofit equation is obtained by solving the duopoly profit equation relative to the volume of output that provides a given amount of profit.
In Fig. Figure 10.12 shows how the isoprofits of firm II are located. Given the output of firm I, the corresponding point on the reaction line of firm II indicates its profit-maximizing volume of production. Firm II can receive the same profit with a larger or smaller output only if firm I reduces supply on the market, so the isoprofit peaks are located on the reaction line. The lower the isoprofit is, the greater the profit it represents, since it corresponds to a smaller output of the competitor.
By combining the isoprofit cards of duopolists, you can see combinations q I, q II, corresponding to industry equilibrium in the Cournot and Stackelberg models (Fig. 10.13). The intersection point of the reaction lines ( WITH) represents the equilibrium in the Cournot model, and the point of tangency of the follower's reaction line with the leader's lowest isoprofit represents the equilibrium in the Stackelberg model ( S I or S II).
From Fig. 10.13 it follows that the firm that becomes the leader increases its profit compared to what it received during competition according to the Cournot model: the leader moves to a lower isoprofit.
It can be proven that with linear functions of industry demand and total costs of duopolists in the Stackelberg model, the market price will be lower than in the Cournot model.
Cartel. Since the maximum profit in the market of a homogeneous good is ensured by a monopoly price, duopolists (oligopolists) will receive the greatest profit in the event of organizing a cartel - an explicit or secret conspiracy to limit market supply in order to maintain a monopoly price.
However, the cartel agreement is not a Nash equilibrium, since each cartel member can increase profits by increasing its output as long as the others adhere to the agreement. The likelihood of violating a cartel agreement increases as the number of its members increases.
The prisoner's dilemma clearly shows the features of oligopolistic pricing.
Two thieves were caught red-handed and charged with a number of thefts. Each of them faces a dilemma - whether to admit to old (unproven) thefts or not.
Rice. 10.14. "Prisoner's Dilemma"
If only one of the thieves confesses, then the one who confesses receives a minimum prison term (1 year), and his unrepentant comrade receives a maximum (10 years). If both thieves confess at the same time, then both will receive a small leniency (6 years in prison); if both persist, then both will be punished only for the last theft (3 years each). The prisoners are sitting in different cells and cannot agree with each other. Before us is a non-cooperative (inconsistent) game with a non-zero (in this case negative) sum. A characteristic feature of this game is that it is unprofitable for both participants to be guided by their private (selfish) interests.
Topic 7. Competition and monopoly in the economic system
7.1 The essence and role of competition in the economic system. Conditions for the emergence of competition. Price and non-price competition, intra-industry and inter-industry competition - characteristics, advantages and disadvantages
7.2 Perfect competition and monopolistic competition: essence, characteristics, advantages and disadvantages
7.3 Oligopoly and monopoly: essence, characteristics, advantages and disadvantages. Types of monopolies: natural, artificial, open, closed
7.4 Horizontal and vertical integration, diversification - as ways to form monopolies. Forms and characteristics of monopoly associations. Monopoly power: essence and forms of manifestation. The essence of monopoly price
7.5 Antimonopoly regulation of the economy: essence, goals and methods. Antimonopoly legislation and its role in the economic system. Antimonopoly policy in the Russian Federation. Functions of the Federal Antimonopoly Service of the Russian Federation.
The essence and role of competition in the economic system. Conditions for the emergence of competition. Price and non-price competition, intra-industry and inter-industry competition - characteristics, advantages and disadvantages
Competition is the most important element of the market, playing a decisive role in improving the quality of products, works and services, reducing production costs, and in mastering technical innovations and discoveries in production.
There are different definitions of competition, depending on the positions taken by theorists. By the most general definition, competition is rivalry between market participants.
According to neoclassics, competition is a struggle for economic resources, for establishing a stable niche in the market.
Representatives of the neoliberal movement (F. Hayek) focus on the role of information, which occurs through price movements and connects producers and consumers.
Competition- confrontation, competition between participants in the market economy for the most favorable conditions for the production and sale of goods and services in order to obtain maximum profit.
The role of competition is that it contributes to the establishment of a certain order in the market, guaranteeing the production of a sufficient quantity of high-quality goods that are sold at an equilibrium price.
Main conditions for the emergence of competition are:
· complete economic (economic) isolation of each commodity producer,
· complete dependence of the commodity producer on market conditions (state) for a certain time,
· opposition to all other commodity producers in the struggle for consumer demand.
Different sectors of the economy experience different conditions of competition. Between the poles - pure competition and pure monopoly - there are such types of competition as monopolistic competition and oligopoly.
Classification of types of competition:
1. By place of origin :
Intra-industry;
Intersectoral.
Intra-industry competition– competition between producers of homogeneous products, which leads to technical progress, reduction of production costs and prices for goods. Also, intra-industry competition- This is competition between entrepreneurs in the same industry for more favorable conditions for the production and sale of goods. This competition arises because enterprises in the industry differ significantly from each other in the quality of the means of production used (equipment, machines), technical equipment and qualifications of the workforce, as a result of which differences arise in the value of the cost of manufactured products and the amount of profit per unit of production. Intra-industry competition leads to the establishment of a single market price for a given type of product, an average rate of profit:
Within the framework of this type of competition, the law applies: “...for equal capital it is necessary to obtain equal profit...”.
Inter-industry competition– competition between producers of different goods allows us to find areas for more profitable investment of capital. The incentives for inter-industry competition are based on the desire of entrepreneurs to obtain maximum profits and search for the most profitable area for investing capital. Under the influence of inter-industry competition, capital flows into industries currently characterized by the highest rate of profit. As a result of this “overflow” of capital, output increases, and the supply of goods in industries with a high rate of profit increases accordingly, and this, in turn, will lead to a decrease in market prices and a decrease in the rate of profit. Intersectoral competition affects changes in the direction of capital investment, its distribution across economic sectors, i.e. regulates investment flows.
The main features of the above types of competition are shown in Table 7.1.
Table 7.1
Comparative features of types of competition