Competition is an economic process aimed at the interaction, relationship and struggle between the companies acting on the market, with the aim of ensuring all sales opportunities of their own products, and meet customer needs.
Functions of competition
In the specialized literature there are the following functions, which performs the competition:
- establishing or identifying the market value of any goods
- alignment of cost with the distribution of profits depending on the cost of labor in the production
- regulation of distribution of financial resources between various industries and sectors.
There is various classification of this economic indicator. For example, perfect and imperfect competition. Let us, in this article in more detail some more.
Species competition in the context of scale development
Under this classification, it is necessary to allocate the following types:
- individual in which one party seeks to occupy a certain place in the market to select the best conditions for the sale of goods and services
- local defined among sellers in the same area
- industry (within the same industry can be traced to the struggle for maximization of income)
- intersectoral, expressed in the rivalry between sellers in various industries in the market for an additional attracting buyers to obtain large income
- the national presented by the competition tovarovedenie within a single state
- global, defined as the struggle of economic entities and different countries in the global market.
Types of competition in terms of character development
This economic indicator by the nature of the development is divided into regulated and free. Also in the economic literature one can find the following types of competition: price and non-price.
So, price competition may occur through lower prices for specific products by artificial means. It's fairly widely used price discrimination that occurs when selling a specified product at different prices that are not justified in terms of costs.
This type of competition most often used in transporting goods or products (often it is the transportation of products non-durable storage with one outlet to another), as well as in the service sector.
Non-price competition occurs mainly due to the improvement of product quality, production technologies, nanotechnology and innovation and the patenting conditions of realization of finished products. This type of competition based on the desire to capture part of the market of a particular industry through the issuance of completely new goods that fundamentally differs from any modernization of the previous model.
Characteristics of perfect and imperfect competition
Such a classification takes place, depending on the competitive equilibrium in the market. So, perfect competition is based on the performance of any assumptions of equilibrium. They can be classified as: multiple independent consumers and producers, free trade of production factors, independence of economic entities, the comparability and homogeneity of the finished product, as well as the availability of information about the state of the market.
Imperfect competition is based on the violation of any assumptions of equilibrium. This competition is characterized by the following properties: distribution of the market between large companies with restrictions on their autonomy, differentiation of finished products and control market segments.
Advantages and disadvantages of competition
Perfect and imperfect competition have their advantages and disadvantages.
So, based on the definition of perfect competition that shows the state of the market, where there are producers and consumers that do not affect market price, which means no reduction in demand for products with increasing sales volumes, the advantages include:
- to contribute to the achievement of conformity of interests of the market participants through the use of balanced demand and supply, and achieve the equilibrium price and quantity
- ensuring efficient allocation of scarce resources in accordance with the information laid price
- the orientation of the manufacturer to the buyer – to achieve the main goal to meet some economic needs of the citizen.
Thus, perfect and imperfect competition contribute to the achievement of optimal and competitive market conditions in which there is no profit and loss.
With these advantages, there are some disadvantages of these types of competition:
- the presence of equal opportunities while maintaining the inequality of result
- benefits not subject to division and routine evaluation in a competitive environment, not produced
- no accounting for different tastes of consumers.
Perfect and imperfect competition allow us to understand how market mechanism, but actually quite rare. The second type of competition determines the impact of producers and consumers on price and its changes. The volume of finished products and the access of producers to the market has some limitations.
The following conditions exist in which have some types of competition (perfect and imperfect):
- in a functioning market should operate only a limited number of manufacturers
- have the economic conditions in the form of barriers, natural monopolies, taxes and licenses to penetrate the particular production
- market perfect and imperfect competition in the information is characterized by some distortion and biased.
These factors can contribute to violations of any market equilibrium in light of limited number of manufacturers that establishes and subsequently supports fairly high prices with the aim of obtaining high monopoly profits. In practice, you can find the following types of competition (perfect and imperfect): oligopoly, monopoly and monopolistic competition.
Classification of competition in accordance with supply and demand of goods or services
Within this classification, perfect and imperfect market competition take the following forms: oligopoly, and pure monopoly.
If we look in detail above, it can be noted that oligopolistic competition in General, may relate to imperfect sight. As the key characteristics of a functioning market accepted: a small number of competitors who have a strong enough relationship
The conditions of perfect and imperfect competition appear for such industries as: chemical industry (production of rubber, polyethylene, oils for technical purposes and certain types of resins), machine-building and metal processing industry.
Pure competition – the kind that can be attributed to perfect competition. As the key characteristics of this market are the following: a significant number of both sellers and buyers without sufficient power to influence prices
Market structures (perfect and imperfect competition) are widely used in industries producing consumer goods: food and light industry, production of household appliances.
There is another kind of competition – monopoly. Its main characteristics include: large number of competitors with the balance of their forces
Types of market competition (perfect and imperfect) means of differentiation passed the following forms: a special technical feature, the taste of the drink, a combination of various characteristics. We must not forget the increasing market power with differentiation of products that can help to protect the business entity and make a profit above the market average.
Classification of markets
The model of perfect and imperfect competition assumes the presence of competitive and noncompetitive markets. As criteria of distinction of these markets is considered to be the main features, which are peculiar in some degree to the models:
- the number of enterprises in a particular industry with their size
- production of goods: homogeneous (standardized) or heterogeneous (differentiated)
- ease of entry in a particular industry or an exit of the enterprise from it
- the availability to companies of market information.
Market perfect and imperfect competition has the following features:
- the presence of a certain number of buyers and sellers for a particular product, each of them can produce (buy) only a small fraction of the total market
- the homogeneity of the product from the position of buyers
- the lack of entry barriers to entry into the industry is newly formed manufacturer and also withdraw from it
- the availability of complete information for all market participants (e.g., buyers are informed about prices)
- rationality in the behavior of market participants, who pursue personal interests.
Firm under conditions of perfect and imperfect competition
The behavior of the enterprise is not so dependent on the time from the competition. Considering the rational behaviour of companies in conditions of perfect competition, the following should be noted. The purpose of any business entity is profit maximization, obtained by increasing the gap between price and cost. The price should be set under the influence of supply and demand in the market. If the company will significantly increase the price of their own finished products, it may lose customers that purchase similar products from a competitor. And sale of the specified entity can be significantly reduced. As for costs, in this case their value is determined by the technologies used by the enterprise.
Thus, before any entity, a question arises about determining the number of manufactured and sold products for maximum profit. Therefore, the company has continuously compare the market price of the products and the marginal cost of its manufacture.
The enterprise in the conditions of imperfect competition
To achieve the rationality of enterprise behavior in the presence of imperfect competition in the market, you must fulfill the following conditions.
In contrast to the example above, under imperfect competition, the producer can influence the price of its products. If the conditions of functioning on the market of perfect competition, the income from the sale of products does not contain any changes (equivalent to the market price), in the presence of imperfect competition in the growth of sales may reduce the price that is given to the reduction of the additional income.
In addition to maximizing profits, there are other types of motivation of enterprise activity:
- in parallel to examine the increase in sales
- the entity achieving a specific profit level, and then you can not make any effort for its maximization.
Summarizing the material described in this article, the following should be noted. Competition between producers leads to the release of large stable companies, which are already difficult to "compete" for other manufacturers. Before each of the newly created producer that wants to occupy a certain place in a particular industry or market can be quite complicated barriers. In this case we are talking about the availability of the necessary financial resources. There are some administrative barriers, which provide for quite stringent requirements for "beginners" on the market.