1 perfect competition. Perfectly competitive market

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

Concept and types of market structures

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

Key characteristics of types of market structures:

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

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

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

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

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

Table of main types of market structures

Perfect (pure, free) competition

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

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

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

Features or conditions of perfect competition:

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

Monopolistic competition

Market of monopolistic competition (English "monopolistic competition") – characterized by a large number of sellers offering a variety of (differentiated) products.

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

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

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

Features or features of monopolistic competition:

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

Oligopoly

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

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

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

Features or oligopoly conditions:

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

Pure (absolute) monopoly

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

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

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

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

Special varieties or types of monopoly:

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

Features or conditions of monopoly:

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

Galyautdinov R.R.

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Rice. 8.1. Equilibrium position of a competitive firm in the long run

Of course, within a short period of time, under conditions of perfect competition, a firm can earn excess profits or incur losses. However, for a long period such a prerequisite is unrealistic, since in conditions of free entry and exit from the industry, too high profits attract other firms to this industry, and unprofitable firms go bankrupt and leave the industry.
Perfect competition helps to allocate limited resources in such a way as to achieve maximum satisfaction of needs. This is ensured under the condition that P = MC. This provision means that firms will produce the maximum possible amount of output until marginal cost resources will not be equal to the price for which it was purchased.
This achieves not only high efficiency in resource allocation, but also maximum production efficiency. Perfect competition forces firms to produce products at the minimum average cost and sell them at a price corresponding to these costs.
Graphically, this means that the average cost curve is just tangent to the demand curve. If the cost of producing a unit of output were higher than the price (AC > P), then any product would be economically unprofitable and firms would be forced to leave this industry.
If average costs were below the demand curve and, accordingly, the price (AC

The influx of new firms would sooner or later reduce these profits to nothing. Thus, the curves only touch each other, which creates a situation of long-term equilibrium: no profit, no loss.

A peculiar paradox arises: in equilibrium conditions, costs should be the same for all firms in a given competitive industry. This premise seems unrealistic, because we know that some companies work with the best raw materials, others have more modern and efficient equipment, others have more qualified workers, others - the best managers. And in general, there cannot be two identical companies.
It is clear that firms that use better resources will have lower costs. How can this obvious fact be reconciled with the proposition that average costs for all firms in a perfectly competitive industry are the same?

In economic theory, there is the following explanation for this paradox: it is assumed that owners of more advanced resources receive greater rewards. For example, more skilled workers - higher wages, more advanced machines have to pay a higher price, etc.
Thus, all savings generated by more efficient resources are spent on paying for them. This explains the tendency towards cost equality that exists in a competitive industry.
Disadvantages of perfect competition. 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, they talk about external external benefits or costs (positive or negative externalities). Therefore, under 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). This applies to public goods such as fire safety, national defense etc.
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. This primarily concerns basic research(which, as a rule, are unprofitable), knowledge-intensive and capital-intensive industries.

Perfect competition promotes unification and standardization of products. It does not fully take into account the wide range of consumer choices. Meanwhile in modern society, having reached high level consumption, various tastes develop.
Consumers are increasingly not only taking into account the utilitarian purpose of a thing, but also paying attention to its design, design, and the ability to adapt it to the individual characteristics of each person. All this is possible only in conditions of differentiation of products and services, which is associated, however, with an increase in the costs of their production.

Classification of market structures. The limitations of perfect competition are overcome under conditions various types market structures.

Competition in which at least one of the characteristics of perfect competition is not observed is called imperfect. The extreme case is a pure monopoly, when only one firm dominates the industry and where are the boundaries. firms and industries coincide.

When there are a limited number of firms in an industry, an oligopoly situation occurs. The opposite situation occurs when there are many firms, but each of them has at least a small part monopoly power. This situation is called monopolistic competition (see Fig. 8.2).

Firm size
Small Large

Perfect Monopolistic Oligopoly Clean
competition competition monopoly
? 1
Number of firms

Rice. 8.2. Classification of main market structures

In addition to the main types of market structures, there are many others. The presence of one buyer in the market is called monopsony. A company that succeeds different categories consumers to sell a product at different prices is called a firm using price discrimination.

When a monopsonistic buyer and a monopolist seller collide, we have bilateral monopoly. If there are only two firms operating in an industry, then this special case of oligopoly is called a duopoly.
If we move on to studying various options combinations of forms of market supply and demand, then the number of possible market structures will increase greatly (see Table 8.1).
Analysis, however, usually assumes that demand is competitive and is limited to examining different forms of supply.
Table 8.1
Classification of market forms

More on topic 8.1. Perfect competition:

1. Supply and price under perfect competition
2. Market demand and demand for a firm's products under conditions of perfect competition
3. Perfect competition. Maximizing profits and minimizing losses of perfect competition
4. A. Titkov UMK ET Topic 08. Perfect competition and pure monopoly
5. 9.1. Labor supply and demand. Determination of the average wage level Salaries in conditions of perfect competition.
6. Monopolistic competition and product differentiation. Comparative analysis of monopolistic competition with the market of perfect competition and pure monopoly.

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Market economy and competition

The main principle of a market economy declares the right of any economic entity, be it an individual, a family, a group, a collective enterprise, to choose the desired, appropriate, profitable, preferred type economic activity and carry out this activity in any form permitted by law. The law is intended to limit and prohibit those types of economic and economic activity, which pose a real danger to the life and freedom of people, social stability, and contradict moral standards. Everything else must be resolved both in the form of individual labor and in its collective and state forms activities.

Thus, in a market economy the following initial principle applies: “Every subject has the right to choose for himself an arbitrary form of economic activity, except for those prohibited by law, due to their social danger.” It should be noted that the principle of universality is also implemented in the market. It determines the complexity of the market economy, where there should be no structures that do not use commodity-money relations, which are the most important attributes of the market in the economy.

The defining principle of a market economy is also the equality of market subjects with different forms of ownership. This principle states: the economic rights of each of these entities, including the possibility of carrying out economic activities, restrictions, taxes, benefits, sanctions, must be adequate for all entities. In the sense that they do not depend on the form of ownership existing in a given enterprise.

The second, no less important aspect of the declared principle lies in granting all forms of property the right to exist, the right to be represented in the economy. What is meant here is, first of all, the elimination of genocide in relation to private, family, group ownership of the means of production, which was so characteristic of the Soviet economy in the recent past.

The modern market economy is a complex organism, consisting of a huge number of diverse production, commercial, financial and information structures, interacting against the backdrop of an extensive system of business legal norms, and united by a single concept - market.

A-priory market- is an organized structure in which there are producers and consumers, sellers and buyers, where as a result of the interaction of consumer demand (demand is the quantity of a good that consumers can buy at a certain price) and the supply of producers (supply is the quantity of a good that producers sell at a certain price) a certain price) both the prices of goods and sales volumes are established. By revising structural organization In the market, the number of producers (sellers) and the number of consumers (buyers) participating in the process of exchanging the general equivalent of value (money) for any product is of decisive importance. This number of producers and consumers, the nature and structure of the relations between them determine the interaction of supply and demand.

The key concept expressing the essence of market relations is the concept competition(Latin concurrere – collide, compete).

Competition is the center of gravity of the entire market economy system, a type of relationship between producers regarding the establishment of prices and volumes of supply of goods on the market. This is competition between manufacturers. Competition between consumers is similarly defined as relationships regarding the formation of prices and the volume of demand in the market. The incentive that motivates a person to compete is the desire to surpass others. Rivalry in markets is about deal making and stakes in the marketplace. Competition is a dynamic (accelerating) process. It serves to better supply the market with goods.

As a means of competition to improve their position in the market, companies use, for example, product quality, price, service maintenance, assortment, terms of delivery and payments, information through advertising.

Competition– competition between participants in the market economy for the best conditions for the production, purchase and sale of goods. Such a clash is inevitable and is generated by objective conditions: the complete economic isolation of each market entity, its complete dependence on the economic situation and confrontation with other contenders for the greatest income. The struggle for economic survival and prosperity is the law of the market. Competition (as well as its opposite - monopoly) can only exist under a certain market condition. Different types competition (and monopoly) depend on certain indicators of market conditions. The main indicators are:

1. Number of firms (economic, industrial, trading enterprises having rights legal entity), supplying goods to the market;

2. Freedom for an enterprise to enter and exit the market;

3. Product differentiation (giving a certain type goods of the same purpose with different individual characteristics - by brand, quality, color, etc.);

4. Firms' participation in market price control.

Market rivalry is classified as follows:

Although the organizational mechanism of pure capitalism is the market system, it is necessary to recognize the important role of competition as a mechanism of control in such an economy. The market mechanism of supply and demand communicates the desires of consumers (society) to enterprises, and through them, to resource suppliers. However, it is competition that forces businesses and resource providers to adequately satisfy these desires.

Meanwhile, competition does not limit its role to guaranteeing an appropriate response to the needs of society. It is competition that forces firms to switch to the most efficient production technologies. In a competitive market, the failure of some firms to use the most economical production technology ultimately means their elimination by other competing firms who use the most efficient production methods. A very remarkable aspect of the functioning and adjustment operations of a competitive market system is that it creates an extraordinary and important identity - the identity of private and public interest. Firms and resource suppliers, seeking to increase their own benefits and operating within the framework of an intensely competitive market system, at the same time - as if guided by an "invisible hand" - contribute to the provision of state or public interests. It is known, for example, that in the existing competitive environment, firms use the most economical combination of resources to produce a given volume of output, since this corresponds to their private benefit. To do otherwise would mean giving up profits or even risking eventual bankruptcy. But at the same time, it is obvious that the interests of society are met by the use of rare resources at the lowest cost, i.e. most effective methods. To do otherwise would mean producing a given volume of output at great cost or sacrificing alternative goods that are truly needed by society.

In a purely competitive economy, the actions of profit-seeking producers will result in an allocation of resources that maximizes consumer satisfaction. Really, efficient use limited resources requires the fulfillment of two conditions. First: to achieve efficient resource allocation, resources must be distributed between firms and industries so as to obtain a certain range of products that are most needed by society (consumers). Allocative efficiency occurs when it is impossible to change the structure of total output in a way that produces a net benefit to society. Second, production efficiency requires that each product included in that optimal product mix be produced in the least costly manner.

But even this seemingly ideal model has flaws. Economists recognize four possible factors that hinder allocative efficiency in a competitive economy: a) there is no reason why a competitive market system would lead to an optimal distribution of income; b) distributing resources, competitive model does not allow for spillover costs and benefits or the production of public goods; c) a purely competitive industry may interfere with the application of the best known production technology and favor the slow pace of technological progress; d) the competitive system does not provide either a wide range of product choices or conditions for the development of new products.

Thus, the force of competition controls or directs the motive of personal gain in such a way that it automatically and involuntarily promotes the best interests of society. The concept of the "invisible hand" is that when firms maximize their profits, social product is also maximized.

Main features:

1. The presence of a large number of firms, many buyers and sellers; no price discrimination; producers and sellers adapt to existing prices and act as price takers. The demand curve for a firm's products is always horizontal (perfectly elastic).

2. There is mobility of all resources, which implies freedom of entry into and exit from the industry.

3. Homogeneity of goods and services, i.e. production of standard products and absolute awareness of producers and consumers.

4. Free access to information about market conditions, prices, costs, etc.

The firm maximizes its profit by choosing the volume of production at which MR = MC = P. If the price of the product in the short-term time interval exceeds average costs, then the firm receives economic profit. If price equals average cost, then the firm receives normal (zero) profit . If the market price is lower than average cost, the firm incurs losses. Production is temporarily stopped if the price of a product falls below the minimum average variable costs (closing points ).

For a long period this is impossible, because... in conditions of free entry and exit from an industry, high profits attract other firms to this industry, and unprofitable firms leave the industry. In conditions of perfect competition in the long run, equality is observed:

MR = MC = AC = P.

Perfect competition helps to allocate limited resources in such a way as to achieve maximum satisfaction of needs. This is ensured when P = MC. This provision means that firms will produce the maximum possible amount of output until the marginal cost of the resource is equal to its price. Perfect competition forces firms to produce products at the minimum average cost and sell them at a price corresponding to these costs.

The conditions are so strict that they can hardly be met by any truly functioning market. Even markets that most resemble perfect competition only partially satisfy them. For example, the world's commodity exchanges quite fully satisfy the first condition, but barely meet the second and third conditions. And they do not at all satisfy the condition of perfect awareness.

The value of the concept of perfect competition

For all its abstractness, the concept of perfect competition plays an extremely important role in economic science. It has practical and methodological value.

1. The model of a perfectly competitive market makes it possible to judge the principles of operation of many small firms selling standardized homogeneous products, and, therefore, operating in conditions close to perfect competition.
2. It has enormous methodological significance, since it allows - albeit at the cost of large simplifications of the real market picture - to understand the logic of the company's actions. This technique, by the way, is typical for many sciences. Thus, in physics a number of concepts are used ( ideal gas, black body, ideal engine), based on assumptions ( no friction, heat loss, etc.), which are never fully implemented in the real world, but serve as convenient models for describing it.

The methodological value of the concept of perfect competition will be fully revealed later (see the topics "Monopolistic Competition", "Oligopoly" and "Monopoly"), when considering the markets of monopolistic competition, oligopoly and monopoly, which are widespread in the real economy. Now it is advisable to stop at practical significance theory of perfect competition.

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

Perfect competition criterion

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

Obviously, in such conditions, the demand curve for the company's products will look like a horizontal line (Fig. 7.2). Whether the firm produces 10 units of output, 20 or 1, the market will absorb them at the same price P.

Rice. 7.2.

From an economic point of view, a price line parallel to the x-axis means absolute elasticity of demand. In the case of an infinitesimal reduction in price, the firm could expand its sales indefinitely. With an infinitesimal increase in price, the company's sales would be reduced to zero.

The presence of absolutely elastic demand for a firm's products is usually called the criterion of perfect competition. As soon as such a situation develops in the market, the company begins to behave like (or almost like) a perfect competitor. Indeed, fulfilling the criterion of perfect competition sets many conditions for the company to operate in the market, in particular, it determines the patterns of income generation.

Average, marginal and total revenue of a firm

Income (revenue) of a company refers to payments received in its favor when selling products. Like many other indicators, economics calculates income in three varieties. Total revenue (TR) refers to the total amount of revenue a firm receives. Average revenue (AR) measures revenue per unit sold, or (equivalently) total revenue divided by the number of products sold. Finally, Marginal revenue (MR) is the additional revenue generated by the sale of the last unit sold.

A direct consequence of fulfilling the criterion of perfect competition is that average income for any volume of output is equal to the same value - the price of the product and that marginal revenue is always at the same level. So, if the established market price for a loaf of bread is 3 rubles, then the bread stall acting as a perfect competitor accepts it regardless of sales volume (the criterion of perfect competition is met). Both 100 and 1000 loaves will be sold at the same price per piece. Under these conditions, each additional loaf sold will bring the stall 3 rubles. (marginal revenue). And the same amount of revenue will be generated on average for each loaf of bread sold (average income). Thus, equality is established between average revenue, marginal revenue and price (AR = MR = P). Therefore, the demand curve for the products of an individual enterprise under conditions of perfect competition is simultaneously the curve of its average and marginal revenue.

As for the total income (total revenue) of the enterprise, it changes in proportion to the change in output and in the same direction (see Fig. 7.2). That is, there is a direct, linear relationship:

If the stall in our example sold 100 loaves of bread for 3 rubles, then its revenue, naturally, will be 300 rubles.

Graphically, the total (gross) income curve is a ray drawn through the origin with a slope:

That is, the slope of the curve gross income equals marginal income, which in turn is equal to the market price of the product sold by a competitive firm. From here, in particular, it follows that the higher the price, the steeper the gross income straight line will go up.

Small business in Russia and perfect competition

The simplest example we have already given, which is constantly encountered in everyday life, with the sale of bread, suggests that the theory of perfect competition is not as far from Russian reality as one might think.

The fact is that most new businessmen started their business literally from scratch: no one in the USSR had large capital. That's why small business even covered those areas that in other countries are controlled by big capital. Nowhere in the world do small firms play a significant role in export-import transactions. In our country, many categories of consumer goods are imported mainly in millions shuttles, i.e. not even just small, but the smallest enterprises. In the same way, only in Russia are “wild” teams actively engaged in construction for private individuals and renovation of apartments - the smallest companies, often operating without any registration. A specifically Russian phenomenon is “finely wholesale" - this term is even difficult to translate into many languages. In German, for example, wholesale trade is called "large trade" - Grosshandel, since it is usually carried out on a large scale. Therefore, German newspapers often convey the Russian phrase “small-scale wholesale trade” with the absurd-sounding term “small-scale trade.”

Shuttles selling Chinese sneakers; and ateliers, photography, hairdressing salons; sellers offering the same brands of cigarettes and vodka at metro stations, and auto repair shops; typists and translators; apartment renovation specialists and peasants selling at collective farm markets - they are all united by the approximate similarity of the product offered, the insignificant scale of business compared to the size of the market, the large number of sellers, i.e. many of the conditions of perfect competition. It is also obligatory for them to accept the prevailing market price. The criterion of perfect competition in the sphere of small business in Russia is met quite often. In general, albeit with some exaggeration, Russia can be called a country-reserve of perfect competition. In any case, conditions close to it exist in many sectors of the economy where the new private business(and not privatized enterprises).