Perfect competition. The model of perfect competition and the conditions for its occurrence

Imperfect competition is a market model in which either sellers or buyers influence the market price.
Examples of imperfect competition are:
a) pure monopoly
b) monopolistic competition;
c) oligopoly;
d) monopsony;
e) oligopsony.
Let's take a look at each of these market types.
a) Pure monopoly is a market model in which only one seller is the only producer of a product that has no substitutes. An example of a monopoly: the Polaroid company, the De Beers diamond company, etc.
Signs of a monopoly:
The only manufacturer and seller;
They produce a single product;
Wu sets the price himself;
There are barriers to entry into the industry.
Because If a monopolist is the only producer of a product, then he sets the price for his products and determines the quantity. It is said to have monopoly power over the market. A monopoly is called a "price producer".
Reasons for the existence of monopolies:

1. economies of scale, i.e. the existence of natural monopolies - industries in which the production of any volume of products by one firm is cheaper than its production by two or more firms (water supply, telephone communications, gas supply, electricity, postal services, etc.);
2. one firm may have control over a scarce resource, either in the form of raw materials or knowledge (for example, the Russian diamond company Alros controls the raw material, while the Polaroid firm controls the knowledge);
3. the state limits the influx of new firms into the industry by issuing patents, licenses, for example, in some states only state monopolies can sell tobacco.

Sometimes, in order to obtain additional income, the monopoly pursues a policy of price discrimination, i.e. setting different prices for different categories of consumers. There are usually two types of price discrimination: setting a price depending on the quantity purchased. Thus, the prices of goods purchased at retail are higher than the prices of the same goods purchased in bulk.
Discrimination among buyers, i.e. appointment different prices for different groups consumers, for example, the price of subscription publications for individual subscribers is lower than for enterprises, the cost of a minute of a telephone conversation for an individual consumer is lower than for enterprises.
Price discrimination is possible when doing three conditions:

• the firm must have sufficient monopoly power to control production and pricing;
• the possibility of resale of the goods must be excluded;
• the ability of the manufacturer to determine the structure of the market.

The behavior of the monopoly firm is complete opposite behavior of a perfectly competitive firm, since There is only one seller who produces a product that has no close substitutes. The producer in this case is able to control the volume of supply of goods, which allows him to choose any price possible in accordance with the demand curve, while he expects to get the maximum profit.
Monopoly profit maximization condition:
Because the monopolist can set the price and determine the quantity of output, then the demand curve for his product will be decreasing and the marginal revenue curve is also a decreasing line. The demand curve is located above the marginal revenue curve, because. the firm's marginal revenue from the sale of an additional unit of output is lower than the price at which that unit is sold. This gap between price and marginal revenue arises because the firm sells all of its output at certain price. If she wants to increase sales, she must lower the price of additional products.
If a monopoly firm wants to maximize profits, it must determine output and price. The price must be higher than the minimum possible average total cost of the ATC. The volume is determined at the point of intersection of the curves of marginal cost and marginal revenue. Having determined the volume, they find the price as the intersection point of the output volume and the demand curve (see Fig. 1.27).
R

Rice. 1.27. Monopoly profit maximization
The profit of the monopoly will be equal to the area of ​​the rectangle AP BC.
L
The monopoly maximizes profit at the level of production Q, at which MR = MC.
Loss minimization condition:
If demand is insufficient, then the monopolist is forced to charge more low price which results in the firm making a loss. This occurs when the price of the product is below ATC's average total cost. How much output should the monopoly firm choose? Consider the graph:

Rice. 1.28. Minimizing monopoly losses
The monopoly firm minimizes losses given the volume
L
production Q , where MC=MR.
*
Monopoly losses are equal to the area of ​​the rectangle P ABC.
If the demand curve shifts even more to the left, i.e. the firm will have to lower the price even further. If the price does not cover the average variable costs the firm must close.
Monopoly has its pros and cons. Positive sides monopolies manifest themselves in two main points: in certain industries it is more efficient and saves costs; from monopolists more funds and incentives for the development of scientific -technical progress in your production.
At the same time, “every monopoly and every pursuit of profit is evil,” said Henry Ford. Because she has negative sides: irrational distribution of resources (it occurs when, in the pursuit of superprofits, monopolists artificially limit production, raise prices); increasing income inequality in society; danger to democracy in economics and politics. Therefore, even in late XIX century society realized the need to contain and regulate the activities of monopolies. The first law in world history regulating the activities of a monopoly was the Sherman Act, passed in the United States in 1890. According to this law, the monopolization of production and trade was declared illegal and criminal. Modern antimonopoly policy is aimed primarily at: taking advantage of natural monopoly and avoiding or limiting artificial monopoly. In the Republic of Belarus, in December 1992, the Supreme Council adopted the law “On counteraction to monopolistic activity and the development of competition”, which came into force on March 1, 1993. Created in the Republic State Committee on antitrust policy, which should resist excessive monopolization.
b) Monopolistic competition is a market model in which there are many sellers, but they offer a differentiated product.
Signs of monopolistic competition:
Have a large number of sellers (minimum 25);
Y sell a differentiated product (i.e. not interchangeable);
Y have an impact on the price;
Have free entry into the industry and exit from the industry.
Examples of monopolistic competition are restaurants, pharmacies, shops, etc.
Monopolistic competition has features of both perfect competition and monopoly. As a monopoly, monopolistic competition does not produce more goods, because in order to increase the volume of demand for its products, it would have to lower the price. As with perfect competition - a large number of producers and freedom of entry and exit into the industry. Monopolistic competition uses both price and non-price methods of competition: product quality, advertising, terms of sale of products, trademarks. Product differentiation gives each monopolistic competitor some power over the market, i.e. by raising the price, he does not lose his regular customers.
c) Oligopoly is a market model in which most of the sales are made by several firms, each of which is able to influence the market price by its actions.
An example of an oligopoly is the automotive industry, steel industry, etc.
Signs of an oligopoly:
Several sellers (from 2 - duopoly to 24);
Y have an impact on the price;
Products may be homogeneous ( oil industry), and differentiated (automotive industry);
Do have barriers to entry.
The behavior of an oligopoly is determined by two forces acting in opposite directions:
The simple interest of firms in maximizing the total profit of the entire industry;
Each firm has a selfish interest in maximizing its own profits.
Firms can maximize the profits of an entire industry through collusion.
Collusion is an explicit or tacit agreement between firms in an industry to fix prices and outputs.
There is a conspiracy open and tacit.
Explicit collusion is an actual agreement between firms. An example of a clear collusion is the OPEC cartel (created in 1960, at the end of the 20th century, it consisted of 11 countries: Algeria, Venezuela, Indonesia, Iraq, Iran, Qatar, Kuwait, Libya, Nigeria, United United Arab Emirates, Saudi Arabia). But most often, cartels are prohibited by state law. Although in some countries they exist (in Japan, in some European countries).
Silent collusion is based on mutual understanding and is not punishable by law. An example of tacit collusion is price leadership: a price leader firm announces a price change with the tacit consent of other firms. Then all other firms also announce a price increase for their products. The price leader judges when to change the price. If the decision of the leader is not agreed, then a change of leader may occur.
Conditions for collusion:
Have a favorable legal system for the existence of collusion;
Have a small number of firms involved in collusion;
Ease of concluding a contract;
Limiting the ability of other firms to enter the industry.
d) Monopsony is a market in which there is only one buyer. For example, the state is a monopsonist in the market for nuclear warheads.
e) Oligopsony - a market in which most of the purchases are made by a few large buyers. For example, car manufacturers are oligopsonists in the car tire market.

More on Imperfect Competition:

1. Topic 1.4. Competition. Mechanisms of perfect and imperfect competition
2. 22. Competition: its essence, types and role. Imperfect competition.
3. PERFECT AND IMPERFECT COMPETITION MARKETS John Roberts
4. 3.8 EQUILIBRIUM OF AN ENTERPRISE UNDER PERFECT AND IMPERFECT COMPETITION
5. 2. Main forms of competition: perfect and imperfect
6. 1. Perfect and imperfect competition. Market power and monopoly. Four Market Models
7. 8.8. DEMAND IN THE LABOR MARKET UNDER THE CONDITIONS OF PERFECT IMPERFECT COMPETITION

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The main features of the market structure of perfect competition in the general view have been described above. Let's take a closer look at these characteristics.

1. The presence on the market of a significant number of sellers and buyers of this good. This means that no seller or buyer in such a market is able to influence the market equilibrium, which indicates that none of them has market power. The subjects of the market here are completely subordinated to the market element.

2. Trade is carried out in a standardized product (for example, wheat, corn). This means that the product sold in the industry by different firms is so homogeneous that consumers have no reason to prefer the products of one firm to those of another manufacturer.

3. The inability for one firm to influence the market price, since there are many firms in the industry, and they produce a standardized product. In conditions of perfect competition, each individual seller is forced to accept the price dictated by the market.

4. Lack of non-price competition, which is associated with the homogeneous nature of the products sold.

5. Buyers are well informed about prices; if one of the producers raises the price of their products, they will lose buyers.

6. Sellers are unable to collude on prices due to large quantity firms in this market.

7. Free entry and exit from the industry, i.e., there are no entry barriers blocking entry into this market. In a perfectly competitive market, it is not difficult to create new company, there is no problem if an individual firm decides to leave the industry (since firms are small, there is always an opportunity to sell a business).

Markets for certain types of agricultural products can be named as an example of perfect competition markets.

Note. In practice, no existing market is likely to meet all the criteria for perfect competition listed here. Even markets very similar to Perfect Competition can only partially meet these requirements. In other words, perfect competition refers to ideal market structures that are extremely rare in reality. Nevertheless, it makes sense to study the theoretical concept of perfect competition for the following reasons. This concept allows you to judge the principles of functioning small firms existing in conditions close to perfect competition. This concept, based on generalizations and simplification of analysis, allows us to understand the logic of the behavior of firms.

Examples of perfect competition (of course, with some reservations) can be found in Russian practice. Small market vendors, tailors, photo shops, car repair shops, construction crews, apartment renovation specialists, peasants at food markets, stall retail can be regarded as the smallest firms. All of them are united by the approximate similarity of the products offered, the insignificant scale of the business in terms of market size, the large number of competitors, the need to accept the prevailing price, that is, many conditions for perfect competition. In the sphere of small business in Russia, a situation very close to perfect competition is reproduced quite often.

The main feature of the perfect competition market is the lack of price control by an individual producer, i.e., each firm is forced to focus on the price set as a result of the interaction of market demand and market supply. This means that the output of each firm is so small compared to the output of the entire industry that changes in the quantity sold by an individual firm do not affect the price of the good. In other words, a competitive firm will sell its product at a price already existing in the market. As a consequence of this situation, the demand curve for the product of an individual firm will be a line parallel to the x-axis (perfectly elastic demand). Graphically, this is shown in the figure.

Since an individual producer is unable to influence the market price, he is forced to sell his products at the price set by the market, i.e., at P 0 .

A perfectly elastic demand for a competitive seller's product does not mean that a firm can increase output indefinitely at the same price. The price will be constant insofar as the usual changes in the output of an individual firm are negligible compared with the output of the entire industry.

For further analysis, it is necessary to find out what will be the dynamics of the gross and marginal income (TR and MR) of a competitive firm depending on the volume of production (Q), if the firm sells any volume of manufactured products at a single price, i.e. P x = const . In this case, the TR (TR = PQ) graph will be represented by a straight line, the slope of which depends on the price of the products sold (P X): the higher the price, the steeper the graph will have. In addition, a competitive firm will face a graph of marginal revenue that is parallel to the x-axis and coincides with the demand curve for its products, since for any value of Q x, the value of marginal revenue (MR) will be equal to the price of the product (P x). In other words, a competitive firm has MR = P x. This identity takes place only under conditions of perfect competition.

The marginal revenue curve of a perfectly competitive firm is parallel to the x-axis and coincides with the demand curve for its product.

Bibliographic description:

Nesterov A.K. The model of perfect competition and the conditions for its occurrence [Electronic resource] // Educational encyclopedia site

Consider the conditions for the emergence and formation of a perfect competition market model.

Perfect competition, by its definition, presupposes the initial existence of a product homogeneous in properties and characteristics, its consumers and producers, the number of which tends to infinity. a large number, while a single consumer and producer has a small market share, insignificant influence and cannot determine essential conditions sale or consumption of goods by other market participants.

In the perfect competition model important aspect is also the availability of objective, necessary and publicly available information about goods, prices, price dynamics, as well as information about sellers and buyers not only in a particular place, but also in the whole market and its immediate environment.

In the perfect competition model there is a lack of any power of producers of goods over the market, prices for these goods and buyers, however, the price is not set by the manufacturer, but through the mechanism of supply and demand. It should be noted that the model of perfect competition can only exist ideally, since its characteristic features do not occur in real life. economic systems ah pure. Despite the fact that the real embodiment of perfect competition markets in modern economic systems does not exist in their full accordance with the model of perfect competition, some markets are very close in their parameters to perfect competition. The closest to the conditions of perfect competition are the markets for agricultural products, the foreign exchange market and the stock exchange.

In general, it corresponds to a set of elements, which consist of many consumers of goods and many producers of goods, while the state acts as a subject that does not directly influence market mechanisms. Therefore, the size of the market is determined by the sum of the number of consumers and the number of producers, provided that these sets do not intersect.

It can be objectively concluded that, according to the definition of perfect competition, the conditions for the functioning of the market suggest that the number of consumers tend to infinity, as well as the number of producers. Consequently, the size of the market, determined by the sum of the number of consumers and the number of producers, also tends to infinity. However, in real conditions this is impossible due to the limited market. Thus, perfect competition on this basis is possible only under ideal conditions.

The definition of perfect competition indicates that the entire set of producers in the market produces homogeneous products, and all products of the produced assortment have the same quantitative characteristics. Wherein perfect competition model objectively indicates the fact that at least one product must be presented on the market. At the same time, the perfect competition model assumes that for the set of sets of consumers and producers, a set of standardized consumed and produced goods with certain price characteristics is given. However, the equivalence of goods in practice is not really possible, since completely identical goods do not exist, and many characteristics of goods cannot be expressed by quantitative characteristics in the form of numerical data, especially given the existence of non-price indicators. Thus, this feature is also an ideal condition for the existence of perfect competition.

According to the definition of perfect competition, a single consumer and producer cannot influence the conditions for the sale or consumption of goods that are essential for other participants in this market. In this regard, the perfect competition model takes into account that in conditions where there is equal awareness of all market participants, each of them will seek to maximize their own benefit from the sale or consumption of goods. Given this, the market, defined by the sum of the number of consumers and the number of producers, the number of which tends to infinity, in the short term has no upper limit benefits under perfect competition. Therefore, the producer in the short run will seek to maximize his profit by changing the volume of production of goods, while operating with the variable factors available to him, such as labor and materials. At the same time, in conditions of perfect competition, marginal revenue is equal to the price of a unit of output, so the producer will increase the volume of goods produced until marginal cost will become equal to the marginal income, i.e. price. In real conditions, the benefit from the sale or consumption of goods cannot tend to infinity, therefore, this feature also characterizes the model of perfect competition as a certain set of ideal conditions. Accordingly, the decline in the rate of profit in the long run is natural, therefore similar model competitive relations is doomed to failure and requires some external intervention in the market situation.

Conditions for perfect competition

Analyzing the model of perfect competition, we can make an objective conclusion that the conditions for the emergence of perfect competition are reduced to 4 main factors.

Conditions for perfect competition

First, it is required Free access all producers to factors of production at equal prices. In this case, full coverage of all resources, both tangible and intangible, is required, including technology and information. This condition for the emergence of perfect competition means the absence of geographical, organizational, transport and economic barriers to entry and exit from the market in relation to any manufacturer of goods sold on this market. It also guarantees the absence of collusion between producers regarding pricing policy and production volumes of goods and ensures the rational behavior of all participants in the market of perfect competition.

Secondly, positive effect the scale of production is achieved only by producing such a quantity of goods that does not exceed the demand on the market from the consumers of these goods. This condition for the emergence of perfect competition predetermines economic feasibility and the rationality of functioning within the framework of this market of many small producers, the number of which, according to the model of perfect competition, tends to infinity.

Thirdly, the prices of goods should not depend on the volume of their production and the pricing policy of an individual manufacturer, as well as the actions of individual consumers of these goods. This condition de jure assumes that producers operating in the market accept the price as a fact established from outside, de facto, it means that the mechanism of supply and demand operates only on the basis of market laws, due to which the price is determined by the market, which corresponds to the price market equilibrium. In addition, this means that initially the costs of all consumers for the production of homogeneous goods practically do not differ due to the similarity of the applied production technology, factor prices and no difference in transport costs.

Fourth, there must be complete information transparency of data on the characteristics of goods and prices for them for consumers, as well as information on production technology and prices for production factors for producers. This condition for the emergence of perfect competition implies the provision of symmetrically developing sets of buyers and consumers, the number of which should tend to infinity. Related to this condition is also the possibility for any market participant at any time to conclude a deal with any other market participant at no additional cost compared to any other producer or consumer.

When these conditions are met, a market of perfect competition arises, in which buyers and producers perceive market prices as given from the outside and do not affect them, not having a direct or indirect opportunity for this. The first and second conditions ensure the presence of competition, both among buyers and among manufacturers. The third condition determines the very possibility of a single price for a homogeneous product within a given market. The fourth condition is necessary for the optimal interaction of market participants when buying and selling homogeneous goods.

You can also select 3 additional.

Conditions for perfect competition

Additional conditions for the emergence of perfect competition	Characteristic
Consumer capital	In particular, the condition must be observed that the capital of the consumer, with which he purchases goods, consists of the sum of his initial savings and the results from participation in the distribution of income in the manufacturing sector. The latter can be expressed as getting wages as payment for wages or dividends on share capital.
Lack of personal preferences	In addition, the condition that producers and consumers have no preferences of a personal, spatial and temporal nature must be met. This makes it possible to ensure the existence of a set of large sets of producers and consumers, the number of which tends to infinity.
Lack of intermediaries	Also as additional condition The emergence of perfect competition is the initial absence of the possibility of the appearance on the market of exchange offices, dealers, distributors, investment funds and any other intermediaries between producers and consumers. This follows from the market model of perfect competition, which includes only the set of sets of producers and consumers.

Theoretical nature of the model of perfect competition

From point of view economic theory conditions of perfect competition are characterized as the most beneficial for society in the medium term, since unprofitable markets in the long run cease to exist and are replaced by new ones that benefit the participants in these markets, which indicates the successful development of society as a whole. However, not all so simple.

The conditions necessary for the emergence of a market of perfect competition are largely idealized, which is confirmed by the model of the market of perfect competition.

On the one hand, in practice it is impossible to fulfill all these conditions in the required form, on the other hand, it seems futile to maintain such conditions in the long term. It is largely for this reason that the model of perfect competition is abstract. The market model of perfect competition, which assumes complete freedom of competition and the market mechanism, describes the situation of the functioning of an ideal market and has more theoretical than practical significance. At the same time, consideration of the conditions for the emergence of perfect competition is a very significant area for constructing mathematical models, as it allows one to abstract from non-essential aspects when studying the principles of economic interaction and the behavior of producers and consumers.

Thus, the interaction of producers and consumers in conditions of perfect competition should be considered solely from the point of view of studying the theoretical basis for the functioning of the market mechanism.

The value of the perfect competition model lies in the ability to analyze:

• firstly, from the position of each market participant in determining the strategy of behavior in the sale or consumption of goods,
• secondly, from the standpoint of evaluation separate species goods on the market
• thirdly, from the standpoint of the general state of competition in the market as a whole.

In the first case, the state of a particular subject and its interactions with other market participants are considered without taking into account the goods produced or consumed by it. The second approach makes it possible to evaluate the aggregate characteristics of a product without taking into account which specific market participant produced or consumed it. The most detailed is the third case, which is based on the search for the optimal state of the market as a whole, which would suit both producers and consumers.

Literature

1. Berezhnaya E.V., Berezhnoy V.I. Mathematical methods for modeling economic systems. - M.: Finance and statistics, 2008.
2. Volgina O.A., Golodnaya N.Yu., Odiyako N.N., Shuman G.I. Mathematical modeling of economic processes and systems. – M.: KnoRus, 2012.
3. Panyukov A.V. Mathematical modeling of economic processes. – M.: Librokom, 2010.

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 way to get businesses to do all this? Market only.

The market refers to the competition that occurs between enterprises that produce or sell similar products. If exists high level healthy competition, then in order to exist in such a market, it is necessary to constantly improve the quality of goods 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 unlimited quantity sellers who deal in 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 in real conditions, perfect competition will not be able to exist in the market for a long time. Examples that confirm their words have happened more than once in history. The end result was that the market became either an oligopoly or some other form of imperfect competition.

can lead to decline

This is due to the fact that prices are constantly decreasing. 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 a product should be determined by the level of demand as well as supply;

There should be no barriers to entry or entry into a perfectly competitive market. 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.

AT real world it is impossible to give examples of perfectly competitive firms, since there is simply no market that functions 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, established non-market way. 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. Various service stations and car repair shops both in the city and in others settlements there is a lot. 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 at 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 possible only through the introduction of new technologies 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 special 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 such a market that would meet all the requirements that must be observed under perfect competition.