Competition is a concept inherent in a market economy. Each participant in financial and trade relations seeks to occupy a better place in the environment where he has to function. It is for this reason that competition arises. The struggle between the subjects of market relations can be waged according to different rules. This determines the type of competition. The features of such rivalry will be discussed in the article.
General definition
Competition is a rivalry between participants in market relations, which is a necessary tool on the path to movement and development. This is one of the most important economic categories. The term means in translation from Latin “competition” or “clash”.
There are three main views on the interpretation of this concept. In terms of behavioral theory, competition is the struggle of interdependent salespeople. They seek to gain control of the entire market in a particular industry. Neoclassicism clarified this definition somewhat. Adherents of this trend viewed competition as a struggle of mutually dependent sellers to gain control over limited economic goods and consumer money.
Structural theory considers competition from the point of view of the ability or inability of a player in the market to influence the price level. Based on such judgments, several market models are developed. Adherents of this theory distinguish between rivalry and competition.
The third interpretation of producer competition is given by functional theory. According to this view, the struggle is between the old and the new. Entrepreneurs simultaneously destroy and create.
If we consider the concept in its most general form, competition is an economic category. It expresses the connection and interaction of economic entities of the market, which at the same time struggle to master limited resources and benefits. Ultimately, all participants in trade relations try to take a privileged position in a certain type of activity. This ensures the survival of entrepreneurs in the market.
Functions
Competition in the economy is seen as the driving force of progress and development, improving the technical characteristics of products. This is an essential element of a harmoniously functioning system. The economy as a result of such competition produces only those products that the buyer currently needs. Manufacturers are looking for the most effective technologies, invest in new scientific developments in order to improve their product, to make it the required level of quality.
There are several basic functions of competition. The first of these is regulation. In order to occupy the best positions in this industry, the manufacturer makes the products that, in his opinion, will be in demand based on the research. Therefore, only promising market segments that are important for people are developing.
Another function of competition is motivation. This is a chance and a risk for the product manufacturer at the same time. To get high profits, the company must produce high-quality products with minimal production costs. If he violated the wishes of customers, he suffers losses. Buyers will choose another product. This motivates entrepreneurs to produce quality products that will be sold at an affordable cost.
Competition also serves as a control. It limits, defines the framework for the economic development of each company. This does not allow one company to control the price in the market at its discretion. In this case, the seller will be able to choose products that several companies have produced. The more perfect the market rivalry, the fairer the pricing will be.
Competition policy
Studying the concept of competition, you need to understand not only the main ways of its impact on the market, but also the mechanism for managing relationships between all participants. To do this, the state pursues a balanced policy, which has several goals. First of all, technical progress is stimulated. The government motivates manufacturers to manufacture products using innovative technologies.
The concept of competition should be considered as a struggle at a particular moment in time. Manufacturers must respond quickly to all changes that occur in their environment. Therefore, government policy is aimed at disseminating information on the market, its accessibility. All players must quickly respond to the industrial breakthrough, the innovation of one of the participants in market relations. This allows you to develop a specific industry faster.
States are not interested in developing a monopoly in the market. In this case, its development becomes limited, inharmonious. Therefore, an antitrust policy is being pursued, subsidies and benefits for the development of small and medium-sized businesses are allocated. A major player who is a monopolist obeys laws established by law.
There is a possibility that the main players in a certain industry will begin to agree, avoiding the risk, the necessary conditions for the existence of competition. In this case, development will also be inharmonious. Customers will suffer from this, and development, quality improvement and innovation will not be characteristic of such a system. Therefore, the state pursues a policy in the field of preventing collusion of enterprises on prices. Regulatory documents are issued that establish competition rules for a particular industry.
Competition Policy Guarantees
The legislation of each country sets the rules for competition. The regulatory framework adapts to the conditions that have developed within each particular state. This allows you to manage development, create conditions for the harmonious growth of individual industries and the national economy as a whole.
In the Russian Federation, the main regulatory act that governs the relations of all market participants is the Law on Protection of Competition, which was adopted on July 26, 2006. This document helps to establish high-quality competition in the domestic market, protect rights and determine the responsibilities of all participants in trade relations.
The Law "On Protection of Competition" allows you to create conditions that provide an opportunity for different companies, regardless of their size, to carry out their activities. They can easily enter the market, occupy a free niche.
The law stipulates that the focus of competition should remain on the prices and quality of products that are delivered to the market. Each service offered by participants in trade relations must be commensurate with the real cost and other conditions established in the domestic market of the country.
The law protects the rights of trademarks, product brands. This allows the buyer to quickly access information about the origin of a product. Based on such data, consumers can judge the quality of products, their technical characteristics.
The impact of competition on the development of the national economy and society is difficult to overestimate. Therefore, state policy establishes the appropriate conditions for the proper development of each industry. Limited patent protection, registration of industrial designs. Patents granted by rock until the age of 20.
Varieties
There are different types of competition. They are classified on the basis of the point of view from which the relationships of all participants in the trading process are examined. The consequences that competition has on the economy as a whole distinguish between the constructive and destructive rivalry of producers. In economic theory, it is primarily creative competition that is considered.
Distinguish types of competition in the composition of participants who are involved in the competition.
- Intra-industry competition. The participants are enterprises of the same industry. This allows you to form the cost of production.
- Intersectoral competition. The struggle is between subjects of different industries. This rivalry allows you to set the average profit.
Competition may differ in wrestling methods. Highlight price and non-price rivalry. In the first case, in order to attract customers, companies manage the cost of the product (they often lower it, but sometimes raise it). When manufacturers deepen into such methods of struggle between them, a real war can arise. This kind of competition is destructive.
Non-price competition allows participants to gain a privileged position in the market through the manufacture of a unique product. It differs in appearance or internal content. It can also be a service, additional services that the manufacturer provides to the buyer, and advertising.
Perfect (pure) competition
Depending on how manufacturers influence the setting of prices in the market, they emit imperfect and perfect competition. In the second case, a situation is established in the industry in which no enterprise can affect the total cost of production. It is formed solely according to the laws of demand, supply, and also real cost.
Unlike perfect competition, imperfect rivalry becomes dishonest. Some manufacturers, taking advantage of their predominance in this market, begin to dictate their own conditions when setting prices. This effect may be significant or small. This limits the freedom of entrepreneurial activity, sets the framework and restrictions for other players.
Imperfect competition
Imperfect competition includes such forms of market existence as oligopoly, monopoly, monopolistic competition, monopsony, oligopsony and other similar varieties. The more power is concentrated in the hands of one manufacturer, the stronger the monopoly in this industry.
For perfect competition in the market to take place, a large number of small players are required. Moreover, the share of each of the participants in the market should not exceed 1%. All products offered by manufacturers must be uniform, standard. Also, the condition for perfect competition is the presence of many buyers, each of whom can purchase a small amount of goods. All participants in trade relations have access to information on the average price in the industry. There are no barriers or restrictions to enter the market.
Monopolistic competition
Perfect or pure competition today is considered as an abstraction, which allows us to understand the mechanisms in the market. However, in developed countries, in most cases, monopolistic competition is established. This is quite normal. It is controlled by the state.
When considering forms of competition, it is precisely the monopolistic struggle of many manufacturers that needs attention. There are many sellers and buyers on the market. Transactions in this case are concluded in a wide range. They can differ significantly from the established average level. This is due to the ability of firms to offer products of different quality. However, such differences should not be significant. Most often these are non-price competition methods. However, buyers are willing to pay more for this difference. All market participants have a low ability to form a price, because there are a lot of them.
Such competition can arise in an industry characterized by sophisticated technologies (for example, engineering, energy, communications, etc.). So the company can develop a new product, which has no analogues yet. He gets superprofits, but later several players enter the market who have managed to master such an innovation. They get roughly equal opportunities. This does not allow an individual company to dictate the value of the goods.
Oligopoly
There are forms of competition in which the number of players in the market is limited. This is an oligopoly. Participants cannot significantly influence pricing. If one of the players reduces the cost of their goods, the remaining participants will either have to discount their goods or offer a greater amount of additional services.
In such a market, participants cannot rely on a long-term priority position with lower prices. Entering this market is difficult. There are significant barriers that small and medium-sized businesses do not allow here. Often, oligopoly is established in the market for the sale of steel, natural, mineral resources, computer equipment, in mechanical engineering, etc.
Unfair competition may be established in such a market. Since there are few participants in the market, they can agree among themselves and unjustifiably raise prices for goods. Such actions are controlled by the state. Unfair competition leads to devastating consequences for the economy. It does not contribute to development, scientific progress. Collusion of producers leads to the establishment of unfair prices. Demand for products is falling.
