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

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

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

In order to have a higher profit from the sale of products or goods, this is to use some advanced technologies, both in the manufacture of products and in their sale, which will cause a decrease in cost, and hence there will be an increase in profits.

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

Let us consider, in more detail, what pure competition means.

Features of pure competition

Features of perfect competition:

• divisibility and homogeneity of products sold. It is understood that sellers or manufacturers produce such a product that can be completely replaced by products of other market participants;
• an infinite number of equal buyers and sellers. That is, all the demand that is on the market must be covered by more than one or several enterprises, as in the case of monopoly and oligopoly;
• high mobility of production factors. Neither the state, nor specific sellers or manufacturers should influence pricing. The price of goods should determine the cost of production, the level of demand, as well as supply;
• no barriers to exit or entry to the market. Examples can be a variety of small business areas where special requirements are not created and special licenses or other permits are not needed. These include: atelier, shoe repair shop and similar establishments;
• full and equal access of all participants to information (on the price of goods).

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

One of the widely used types of unfair competition in some countries is the giving of bribes, implicitly and explicitly, to various representatives of the state in exchange for various kinds of preferences.

David Ricardo revealed a tendency, natural in conditions of absolute competition, to reduce the economic profit of each seller.

The exchange market in a real economy is most like a market of perfect competition. Keynesians in observing phenomena economic crises came to the conclusion that this form of competition usually suffers a fiasco, which can be overcome only with the help of external intervention.

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

What is the best incentive for businesses to do this? exclusively and only market. The market, in this sense, is a competition that arises between enterprises that manufacture or sell similar products.

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

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

Perfect competition in the market

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

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

The state, in turn, should not influence the market or engage in its full regulation, since this can affect the number of sellers, as well as the volume of products on the market, which will instantly affect the cost per unit of production (goods or services).

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

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

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

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

Perfect competition is extremely rare. In the real world, it is impossible to give examples of perfectly competitive firms, since there simply is no market that functions in this way. Although there are some segments that are as close as possible to its conditions.

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

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

An entire sector of the economy can be called an example of such a market - the oil and gas industry, and Gazprom is a monopoly company. An example of a perfectly competitive market is the automotive repair industry. All kinds of service stations and car repair shops, both in the city and in others settlements, there are many.

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

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

Under perfect competition, it is impossible to raise the price on its own, unlike a monopoly enterprise. Due to competition in the market, you can't just raise the price as all customers will be looking for more bargain purchase goods. Thus, an enterprise can lose its market share, and this will entail disastrous consequences.

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

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

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

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

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

Perfect competition, examples of which are listed above, is an ideal form of competition from the understanding of pricing, supply and demand criteria. Nowadays, not a single country, not a single economy in the world, can boast of such a market that would meet absolutely all the requirements that a market must meet with perfect competition.

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

Competition(lat. concurrentia, from lat. concurro - running away, colliding) - struggle, rivalry in any area. In the economy, it is a struggle between economic entities for the maximum effective use production factors.

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

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

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

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

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

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

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

Perfect Competition

Perfect competition is a state of the market in which there are a large number of buyers and sellers (manufacturers), each of which occupies a relatively small share of the market and cannot dictate the conditions for the sale and purchase of goods.

It is supposed to have the necessary and accessible information about prices, their dynamics, sellers and buyers not only in this place, but also in other regions and cities.

The market of perfect competition implies the absence of the power of the producer over the market and the setting of the price not by the producer, but through the function of supply and demand.

Features of perfect competition are not inherent in any of the industries in full. All of them can only approach the model.

The features of an ideal market (market of perfect competition) are:

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

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

Imperfect Competition

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

Signs of imperfect competition are:

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

Losses from imperfect competition:

1. unjustified price increase
2. increase in production and distribution costs
3. slowdown in scientific and technological progress
4. decrease in competitiveness in world markets
5. decline in the efficiency of the economy.

Monopoly

A monopoly is an exclusive right to something. With regard to the economy - the exclusive right to manufacture, purchase, sell, owned by one person, a certain group of persons or the state.

Arises on the basis of high concentration and centralization of capital and production. The goal is to extract ultra-high profits. Provided by setting monopoly high or monopoly low prices.

Suppresses competitive potential market economy leads to higher prices and disproportions.

Monopoly Model:

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

It is necessary to distinguish between natural monopoly, that is, structures whose demonopolization is either impractical or impossible: public utilities, the subway, energy, water supply, etc.

Monopolistic competition

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

A market with monopolistic competition is characterized by the following:

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

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

Oligopoly

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

As a rule, there are 3 or more participants. A special case of an oligopoly is a duopoly. Price controls are very high, barriers to entry into the industry are high, and there is significant non-price competition. An example would be the operators cellular communication and the housing market.

Antitrust policy

All developed countries of the world have antitrust laws that restrict the activities of monopolies and their associations.

The antimonopoly policy in European countries is more aimed at regulating already established monopolies, regardless of how they achieved their monopoly position, and this regulation does not imply structural changes, that is, it does not contain requirements for deconcentration, splitting firms into independent enterprises.

For the state antimonopoly policy of the United States, first of all, and certainly, such a position is characteristic, according to which it is not at all necessary to deprive a firm of monopoly high profits if it has achieved a monopoly position in the market "due to higher business qualities, ingenuity, or just a happy accident.

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

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

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

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

Objects with competitiveness can be divided into four groups:

• products,
• enterprises (as producers of goods),
• industries (as a set of enterprises offering goods or services),
• regions (districts, regions, countries or their groups).

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

• National Competitiveness
• Product competitiveness
• Enterprise competitiveness

In addition, it is fundamentally possible to distinguish four types of subjects that evaluate the competitiveness of certain objects:

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

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Perfect and imperfect competition: essence and characteristics

Evgeny Malyar

# business vocabulary

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

• Characteristics of perfect competition
• Signs of perfect competition
• Conditions close to perfect competition
• Advantages and disadvantages of perfect competition
• Advantages
• disadvantages
• perfect competition market
• Imperfect Competition
• Signs of imperfect competition
• Types of imperfect competition

Everyone is familiar with the concept of economic competition. This phenomenon is observed at the macroeconomic and even household level. Every day, choosing this or that product in the store, every citizen, willingly or not, participates in this process. And what is the competition, and, finally, what is it in general from a scientific point of view?

Characteristics of perfect competition

To begin with, a general definition of competition must be adopted. Regarding this objectively existing phenomenon, accompanying economic relations from the moment of their inception, various concepts have been put forward, from the most enthusiastic to completely pessimistic.

According to Adam Smith, expressed in his Inquiries into the Nature and Causes of the Wealth of Nations (1776), competition with its "invisible hand" transforms the selfish motives of the individual into socially useful energy. The theory of a self-regulating market assumes the denial of any state intervention in the natural course of economic processes.

John Stuart Mill, who was also a great liberal and a supporter of maximum individual economic freedom, was more cautious in his judgments, comparing competition with the sun. Probably, this eminent scientist also understood that on a too hot day a little shade is also a blessing.

Any scientific concept involves the use of idealized tools. Mathematicians refer to this as having no width "line" or dimensionless (infinitely small) "point". Economists have a concept of perfect competition.

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

As in any other science, in economic theory a certain ideal model of the market is adopted, which does not fully correspond to the realities, but allows one to study the ongoing processes.

Signs of perfect competition

The description of any hypothetical phenomenon requires criteria to which a real object should (or can) aspire. For example, doctors consider a healthy person with a body temperature of 36.6 ° and a pressure of 80 to 120. Economists, listing the features of perfect competition (also called pure competition), also rely on specific parameters.

The reasons why it is impossible to achieve the ideal are not important in this case - they are inherent in human nature itself. Each entrepreneur, receiving certain opportunities to assert their positions in the market, will definitely use them. However, hypothetical Perfect competition is characterized by the following features:

• An infinite number of equal participants, which are understood as sellers and buyers. The convention is obvious - nothing limitless exists within our planet.
• None of the sellers can influence the price of the product. In practice, there are always the most powerful participants capable of carrying out commodity interventions.
• The proposed commercial product has the properties of uniformity and divisibility. Also purely theoretical. An abstract commodity is something like grain, but even it can be of different quality.
• Complete freedom of participants to enter or leave the market. In practice, this is sometimes observed, but by no means always.
• Possibility of problem-free movement of production factors. Imagine, for example, a car factory that can be easily transferred to another continent, of course, you can, but this requires imagination.
• The price of a product is formed solely by the ratio of supply and demand, without the possibility of influence of other factors.
• And, finally, full public availability of information about prices, costs and other information, in real life, most often trade secret. There are no comments here at all.

After considering the above features, the conclusions are:

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

Conditions close to perfect competition

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

If these figures are equal to each other, the manager gets an idea of ​​​​the dependence of the profitability of his enterprise on the volume of production.

This intersection point is visually illustrated by a graph on which all three lines converge:

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

Q is the volume of production.

Advantages and disadvantages of perfect competition

Since perfect competition as an ideal phenomenon in the economy does not exist, its properties can only be judged by individual features that manifest themselves in some cases from real life (at the maximum possible approximation). Speculative reasoning will also help to determine its hypothetical advantages and disadvantages.

Advantages

Ideally, such competitive relations could contribute to the rational distribution of resources and the achievement of the greatest efficiency in production and commercial activities.

The seller is forced to reduce costs, since the competitive environment does not allow him to raise the price.

In this case, new economical technologies, high organization of labor processes and all-round thrift can serve as means of achieving advantages.

In part, all this is observed in real conditions of imperfect competition, but there are examples of a literally barbaric attitude towards resources on the part of monopolies, especially if state control is weak for some reason.

An illustration of the predatory attitude to resources can be the activities of the United Fruit company, which for a long time ruthlessly exploited the natural resources of the countries of South America.

disadvantages

It should be understood that even in its ideal form, perfect (aka pure) competition would have systemic flaws.

• First, its theoretical model does not provide for economically unjustified spending on achieving public goods and raising social standards (these costs do not fit into the scheme).
• Secondly, the consumer would be extremely limited in the choice of a generalized product: all sellers offer in fact the same thing and at about the same price.
• Third, an infinitely large number of producers leads to a low concentration of capital. This makes it impossible to invest in large-scale resource-intensive projects and long-term scientific programs, without which progress is problematic.

Thus, the position of the firm under conditions of pure competition, as well as the position of the consumer, would be very far from ideal.

perfect competition market

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

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

In reality, competition is imperfect, and is divided into types, whichever condition suits the market best.

Profit maximization in conditions of perfect competition is achieved exclusively by price methods.

The characteristics and model of the market are important for determining the possibilities of functioning in conditions of imperfect competition. It is hard to imagine that a huge number of sellers offer absolutely the same type of product, which is in demand among an unlimited number of buyers. This is the ideal picture, suitable only for conceptual reasoning.

In the real world, competition is always imperfect. However, there is only one common feature markets of perfect and monopolistic competition (the most common) and it consists in the competitive nature of the phenomenon.

There is no doubt that business entities seek to achieve advantages, take advantage of them and develop success up to full mastery of all possible sales volumes.

In all other respects, perfect competition and monopoly differ significantly.

Signs of imperfect competition

Since the ideal model of "capitalist competition" has been discussed above, it remains to analyze its differences from what happens in a functioning world market. The main signs of real competition include the following points:

1. The number of producers is limited.
2. Barriers, natural monopolies, fiscal and licensing restrictions objectively exist.
3. Market entry can be difficult. Exit too.
4. Products are produced in a variety of quality, price, consumer properties and other characteristics. However, they are not always separable. Is it possible to build and sell half of a nuclear reactor?
5. Mobility of production takes place (in particular, towards cheap resources), but the processes of moving capacities themselves are very costly.
6. Individual participants have the opportunity to influence the market price of the product, including non-economic methods.
7. Technology and pricing information is not public.

From this list it is clear that the real conditions modern market are not only far from the ideal model, but most often contradict it.

Types of imperfect competition

Like any non-ideal phenomenon, imperfect competition is characterized by a variety of forms. Until recently, economists simplistically divided them according to the principle of functioning into three categories: monopoly, oligopolistic and monopolistic, but now two more concepts have been introduced - oligopsony and monopsony.

These models and types of imperfect competition deserve detailed consideration.

Monopsony

This type of imperfect competition occurs when only one consumer can purchase a manufactured product.

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

This is a kind of dictate of a single buyer (and not a manufacturer), and it is not common.

There is also a phenomenon in the labor market. When only one works in a city, for example, a factory, then ordinary person opportunities to sell their labor are limited.

Oligopsony

It is very similar to monopsony, but there is a choice of buyers, albeit small. Most often, such imperfect competition occurs between manufacturers of components or ingredients intended for large consumers.

For example, some recipe component can only be sold to a large confectionery factory, and there are only a few of them in the country.

Another option - a tire manufacturer seeks to interest one of the car factories for the regular supply of its products.

As a result, we note: any competition that exists in real conditions is as imperfect as the market itself. From the point of view of economic theory, perfect competition is a simplified concept. It is far from ideal, but necessary. Doesn't it surprise anyone that physicists use different mathematical models and scientific assumptions?

Imperfect competition is diverse in forms, and it is possible that new ones will be added to its already existing types in the future.

Perfect Competition

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

Economists distinguish two types of competition:

Perfect
Imperfect (monopolistic, oligopoly and absolute monopoly).

The article discusses perfect competition in detail.

Definition of perfect competition

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

Imagine that there is a market for rye flour. It interacts with sellers (5 firms) and buyers. The rye flour market is designed in such a way that it can be easily entered new member offering its products. In this market model, there is perfect (pure) competition.

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

Necessary Conditions for Perfect Competition

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

1. Homogeneity of the market; 2. Unlimited number of sellers and buyers of the product;3.

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

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

6. open information about the main economic indicators all market players. It is about the demand, supply and prices of the product. In a market of pure competition, all indicators are considered fairly;

7. Mobile factors of production;

8. The impossibility of a situation where one market entity influences the rest by non-economic methods.

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

Pure competition - abstraction or reality?

There is no perfect competition in real life. Any market consists of living people who pursue their own interests and have leverage over the process. There are three main barriers that prevent a new firm from simply entering the market:

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

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

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

Mergers and acquisitions. Large enterprises buy up new, developing firms. This is done to introduce new technologies and expand the range of the enterprise under one brand. An effective way to compete with successful newcomers.

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

1. Will the income from the sale of products cover the costs of promotion and development?
2. Will my business be profitable?

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

Markets close to pure competition

If pure competition is an abstraction, why is it needed? An economic model is needed in order to study the laws of the market and more complex types of competition. Perfect competition plays a very important role in the economy:

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

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

Perfect competition. Examples of perfect competition

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

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

The concept of perfect competition

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

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

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

Perfect competition can lead to decline

This is due to the fact that in the long run there is a constant decrease in prices. And if human resource in the world is big, here the technological is very limited. And sooner or later, enterprises will move to the fact that all fixed assets and all production processes, and the price will still fall due to the attempts of competitors to conquer a larger market.

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

Key Features of Perfect Competition

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

- a large number of sellers or manufacturers of products. That is, all the demand that is on the market must be covered by more than one or several enterprises, as in the case of monopoly and oligopoly;

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

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

– there should be no barriers to entry or entry into the market of perfect competition. Examples can be very different from the small business sector, where special requirements are not created and special licenses are not needed: ateliers, shoe repair services, etc.;

– there should be no other influences on the market from the outside.

Perfect competition is extremely rare.

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

To find such examples, it is necessary to find those markets in which small business mainly operates. If any firm can enter the market where it operates, and it is also easy to exit it, then this is a sign of such competition.

Examples of Perfect and Imperfect Competition

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

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

An example of a perfectly competitive market is the provision of automotive repair services. There are a lot of various service stations and car repair shops both in the city and in other settlements. The type and amount of work performed is almost the same everywhere.

It is impossible in the legal field to artificially increase the prices of goods if there is perfect competition in the market. Examples confirming this statement, everyone saw in his life repeatedly in the ordinary market. If one seller of vegetables raised the price of tomatoes by 10 rubles, despite the fact that their quality is the same as that of competitors, then buyers will stop buying from him.

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

Under perfect competition, it is impossible to raise the price on its own, as a monopolist can do.

Because of a large number competitors simply cannot raise the price, since all customers will simply switch to purchasing the corresponding goods from other enterprises. Thus, an enterprise may lose its market share, which will entail irreversible consequences.

In addition, in such markets there is a decrease in the prices of goods by individual sellers. This happens in an attempt to "win" new market shares to increase revenue levels.

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

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

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

The main problem is the weak support of the state, since so far many laws are focused on supporting large manufacturers, which are often monopolists.

In the meantime, the small business sector remains without much attention and the necessary funding.

Perfect competition, examples of which are given above, is an ideal form of competition on the part of understanding the criteria for pricing, supply and demand. To date, no economy in the world can find a market that would meet all the requirements that must be observed under perfect competition.

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Introduction

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

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

The purpose of this term paper is to determine the role of the state in the market, the effectiveness of the state pricing policy.

To achieve the goal, the following tasks were set:

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

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

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

Features of state regulation of prices in the market of perfect competition

Market structure

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

The structure of the market is the internal structure, location, order of individual elements of the market, their specific gravity in the total volume of the market; these are the flow conditions. market competition.

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

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

There are three main types of imperfect competition: monopolistic competition, oligopoly, monopoly.

Features of a perfectly competitive market

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

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

1. The market is made up of many competing sellers, each selling a standardized product. many buyers.

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

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

4. Price information , technology and probable profit is freely available, and there is an opportunity to quickly respond to changing market conditions through the movement of applied resources.

5. Market entry and exit from it for sellers of standardized goods is free . This means that there are no restrictions preventing the firm from selling the product on the market, and there are no difficulties with the termination of operations in the market.

A perfectly competitive market is a market where the conditions for perfect competition are satisfied. In a perfectly competitive market, buyers of standard products or services do not care which firm to choose. For example, the market for eggs is very likely to be competitive. Many vendors sell eggs every day. None of the farmers account for more than 1% of the daily market sales. The first two of the above conditions for a perfectly competitive market ensure that no seller can influence the price of a product. The individual seller has a very small share of the total output, he is not able to change the supply in the market so that the price changes. Accordingly, sellers in a perfectly competitive market accept prices as set from outside, that is, they are "price-takers".

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

Let us assume that the equilibrium price P E equals $0.4 per pound of broiler, then the equilibrium quantity Q E is 2 billion pounds annually. Part (b) of the figure shows what the market looks like from the point of view of the individual producer. The range of possible output options from the point of view of the firm has a dimension expressed not in billions of pounds, but in thousands. This range is so small that whether a firm produces 10,000 pounds, 20,000 pounds, or 40,000 pounds of chicken per year has little to no effect on aggregate demand. The change per £10,000 is so small that it can't be seen on the much larger market demand and supply charts. As for a single firm, it is obvious that the demand curve for its products is perfectly elastic (horizontal) at the market price, although, from the point of view of the market as a whole, the demand curve has a quite usual negative slope.

Entry into and exit from a perfectly competitive market is open to all firms without exception. Therefore, in the long run, the level of profitability becomes the regulator of the resources used in the industry.

If the level of market prices established in the industry is above the minimum of average costs, then the possibility of obtaining economic profits will serve as a kind of incentive for new firms to enter the industry. The absence of barriers on their way will lead to the fact that an increasing share of resources will be directed to the production of this type of goods.

And, conversely, economic losses will act as a disincentive, scaring off entrepreneurs and reducing the amount of resources used in the industry. After all, if a firm intends to leave the industry, then in conditions of perfect competition it will not encounter any barriers in its path. That is, the company in this case will not incur any sunk costs and will find a new use for its assets or sell them without harm to itself. Therefore, it can really fulfill its desire to move resources to another industry.

Zero economic profit

The relationship between the level of profitability in a competitive industry and the size of the use of resources in it, and hence the volume of supply, predetermines break-even of firms operating in a competitive industry in the long run(or equivalently, their receipt zero economic profit). The mechanism of establishment of zero economic profit is shown in fig. 7.12.

Let in a competitive industry (Fig. 7.12 b) initially there is an equilibrium (point O), dictating a certain price level P0, at which the firm (Fig. 7.12 a) receives zero profit in the short run. Suppose further that the demand for the products of the industry suddenly increased. The industry demand curve in this situation will move to position , and the industry will establish a new short run equilibrium(equilibrium point, equilibrium supply, equilibrium price). For the firm, the new higher price level will be a source of economic profit (the price lies above the level of the average total costs of ATC).

Economic profits will attract new producers to the industry. The consequence of this will be the formation of a new supply curve, shifted compared to the original in the direction of large volumes of production. A new, slightly lower price level will also be established. If economic profits are maintained at this price level (as in our diagram), then the influx of new firms will continue, and the supply curve will shift further to the right. In parallel with the influx of new firms into the industry, the supply in the industry will also increase under the influence of the expansion of production capacities by firms already operating in the industry. Gradually, all of them will reach the level of the minimum average long-term costs (LATC), i.e. reached the optimal size of the enterprise (see "Costs").

It is obvious that both of these processes will last until the supply curve takes the position , which means zero profits for firms. And only then will the influx of new firms dry up - there will no longer be an incentive for it.

The same chain of consequences (but in the opposite direction) unfolds in the event of economic losses:

1. reduction in demand.
2. price drop (short-term).
3. emergence of economic losses at firms (short-term period).
4. outflow of firms and resources from the industry.
5. reduction of long-term market supply.
6. price increase.
7. break-even recovery (long-term).
8. stopping the outflow of firms and resources from the industry.

Thus, perfect competition has a peculiar mechanism of self-regulation. Its essence lies in the fact that the industry responds flexibly to changes in demand. It attracts an amount of resources that increases or decreases the supply just enough to compensate for the change in demand. And on this basis, it ensures the long-term break-even of firms.

Long run equilibrium conditions

Summing up, we can say that the equilibrium established in the industry in the long run satisfies three conditions:

All three of these long-run equilibrium conditions can be summarized as follows:

Long run industry supply curve

If we connect all the points of possible long-term equilibrium, then a long-term supply line of a competitive industry () is formed.

Indeed, the equilibrium points O and in fig. 7.12 actually outline the position of the long-term supply curve. They show that, in the long run, a competitive industry can provide any amount of supply at the same price. Indeed, repeating the above chain of reasoning, it is easy to come to the following conclusion: no matter how demand changes, the supply will react in such a way that, in the end, the equilibrium point will again return to the level corresponding to the level of zero economic profit for firms operating in the industry.

So, general principle is that The long-run supply curve of a competitive industry is the line through the break-even points for each level of production. On fig. 7.13 shows different variants manifestations of this pattern.

Industries since fixed costs

In the specific example we have considered (see Fig. 7.12), such a line is a straight line parallel to the x-axis and corresponding to the absolute elasticity of the proposal. The latter, however, does not always take place, but only in the so-called industries with fixed costs. That is, in those cases when, while expanding the volume of its supply, the industry has the opportunity to purchase necessary resources at constant prices.

As a rule, this condition is met for industries that are relatively small relative to the scale of the entire economy. For example, the growth in the number of gas stations in Russia does not create tension in any of the resource markets that firms enter when building gas stations. Apart from inflation, the creation of reservoirs, the purchase of pumps, the hiring of personnel, etc. the construction of each additional station costs approximately the same amount (the differences can only be related to its size and design). Consequently, the break-even level at which the price of gas station services will freeze under the influence of competition will always be the same. We have depicted this situation in Fig. 7.13 a, combining on the same graph the long-term supply curve of the industry () and the cost curves of a typical firm (), corresponding to a given level of industry-wide production.

For a perfectly competitive market, this situation is quite typical. Recall stalls and shops of various profiles, workshops for the repair and manufacture of various goods, mini-bakeries, confectioneries, etc. All these types of businesses are small across the country, and their expansion is unlikely to affect the prices of purchased resources.

Industries with rising costs

This is not the case if resources become more and more expensive for each new firm entering the market. This usually happens if the growing demand of an industry for a certain resource is so significant that it creates a shortage in the economy as a whole.

This situation is typical for any industries with rising costs where the prices of factors used in production rise as the industry expands and the demand for those factors increases.

With an increase in long-term costs, newcomers to the industry will reach the level of zero economic profit at a higher price than old-timers. If we turn again to Fig. 7.12, then we can say that the influx of new firms into the industry will not bring supply to the level of the curve , but will stop earlier, say, in a position at which firms will find themselves in a new (taking into account the rise in price of resources) break-even position. It is clear that the long-term supply curve () will pass in this case not along a horizontal path, but along an ascending curve.

In such situations, with the expansion of production, the increase in costs can affect even small industries. After all, unique resources are always available in very limited sizes. Yes, in history Russia XIX in. similar processes affected, say, the famous malachite crafts (workshops for artistic processing stone), when the fashion for malachite and the growth in output caused by it collided with the depletion of the reserves of this mineral in the Urals. Once a cheap ("cheerful") stone quickly became expensive, even the kings did not neglect crafts from it, which is perfectly described by P. Bazhov.

Industries with falling costs

Finally, there are industries in which the prices of factors of production decrease as production expands. The minimum average cost in this case also decreases in the long run. And the growth of industry demand in the long run causes a simultaneous increase in supply and a decrease in the equilibrium price.

The long-term supply curve of an industry with falling costs has a negative slope (Fig. 7.13 c).

Such a super-favorable development of events is usually associated with economies of scale in the production of suppliers of resources (raw materials, equipment, etc.) for this industry. For example, it is likely that as the population grows and becomes stronger farms in Russia, their costs will experience a long-term reduction. The fact is that machines and equipment adapted for farmers are now produced literally by the piece, and therefore very expensive. With the appearance of mass demand for them, production will be put on stream and the cost will drop sharply. Farmers, having felt the cost reduction (in Fig. 7.13 from to ), will themselves begin to reduce the price of their products (curve falling).

2. State regulation .................................................................. .... 3

a.Reasons for government regulation...................... 3

b.Tasks of state regulation.............................. 4

c.Types of state regulation of markets ....... 4

d.State regulation in Russia.............................. 5

3. A little bit.............................................. ............................... 6

4. Bibliography................................................. ................................. 7

Let's start from the beginning

studying different kinds markets, we divide them all, first, into two types: markets of perfect and imperfect competition, depending on the number of economic agents in the market, product differentiation, the share of an individual seller in the market, the presence or absence of entry and exit barriers in the market, the availability of information, the degree market power of sellers. But markets of perfect competition in life are quite rare (for example, the market for agricultural products or the market for valuable papers), but with imperfect competition (by which we mean monopolistic competition, oligopoly and monopoly), we meet much more often. And since sellers in such markets have market power, the prices of their goods are higher than in a perfectly competitive market. This means that state intervention and price regulation often serves the interests of buyers, except in cases where the state, for example, by supporting temporarily idle giant factories, artificially inflates prices for their products.

Since monopolistic competition is pretty close to perfect, we will turn our attention to the state regulation of oligopolies and monopolies. We will try to understand the causes and objectives of regulating their activities, consider the situation that has developed in Russia in the last decade.

Reasons for government regulation

Despite the technical efficiency of the concentration of production in the hands of one enterprise, a monopolist or oligopolist often abuses his position. This manifests itself in overstating costs or inflating profits. And unreasonably high prices negate the social effect of economies of scale.

There are two main options for the economic behavior of the seller of goods in a non-competitive market, allowing you to make a profit that is significantly greater than in the case of his actions in a competitive market.