Competition has important in the life of society. It stimulates the activities of business units. Through competition, commodity producers seem to control each other. Their struggle for the consumer leads to lower prices, lower production costs, and improved product quality.

Also, it should be noted that market competition contributes to more effective use resources in the production of goods necessary for society. Those. the industry involves resources in production exactly in the volume that is necessary to cover effective demand.

In addition, the advantage of competition is that it creates conditions for the optimal use of scientific and technical achievements in the field of creating new types of goods, introducing new technology and technology, the development of more advanced methods of organizing and managing production.

Competition aims producers at satisfying various needs and at improving the quality of goods and services.

The undoubted advantage of competition is that it necessitates a flexible response and rapid adaptation of producers to changing production conditions, and also ensures freedom of choice and action for consumers and producers.

The combination of these advantages makes perfect competition one of the most effective types of markets. It is the perfectly competitive market that is the regulator social production.

Perfect competition, as well as market economy In general, it 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 has developed previously. 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, we talk about external external benefits or costs (positive or negative externalities). Therefore, in 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).

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.

Thus, despite all its advantages, a perfectly competitive market cannot be idealized. Small-sized enterprises operating on the market cannot compete with large-scale enterprises saturated with modern technology.

Now about the advantages and disadvantages of a monopoly. The study of the patterns of market behavior of monopolies gives grounds to assert that monopolies as economic organizations play a significant role in the socio-economic development of any country.

It must be recognized that a monopolist may have advantages in production and distribution costs due to economies of scale and innovation. Indeed, the expansionist behavior characteristic of monopoly companies carries with it the potential economic growth. In addition, a monopoly can reduce costs in cases where a significant level of concentration is conducive to or necessary to achieve full economies of scale.

As a rule, a monopoly company (especially if it is a vertically integrated structure) can also achieve significant advantages in transaction costs. A huge monopoly is able to reduce administrative costs, costs for various types of agreements and for concluding contracts between individual production divisions, combining into its structure adjacent stages of product manufacturing, R&D, sales, customer service, etc. Obviously, as a result of this tendency to By combining efforts, a significant economic effect is achieved.

Huge monopolistic associations make a significant contribution to Country's GDP, ensure the competitiveness of the national economy. And this is also an indisputable fact.

The basis for maintaining a monopoly is flexibility. The presence of a combination of potential competition factors determines the unstable nature of modern monopolies. The dynamism of market development, changes in its structure caused by scientific and technical progress, intensification of diversification processes, intensification of inter-industry and interstate expansion of capital, globalization of the economy limit the monopoly power of companies. Therefore, the monopolist is forced to show high mobility, timely adapt to spontaneous market processes, submit to their dictates, rebuild depending on changes in market demand, act in accordance with the requirements of changing competitive environment. Of course, in this sense, small monopolists have an advantage over giant companies: it is easier for the former to achieve flexibility due to being as close as possible to consumers of their own products.

Today, there is no longer any doubt or objection to the fact that a monopolist firm can be more innovatively active than a firm operating in competitive industry. The high innovative activity of the monopolist is due to ample opportunities for large-scale financing, significant scientific and technical potential, a combination of economic, technological, organizational factors necessary for the implementation of discoveries and innovations. However, it is not only opportunities that stimulate a monopolist to introduce innovations. Today, innovation for a monopoly is both the basis, condition and guarantee of maintaining a monopoly position. The point is that: 1) innovation ensures the preservation and growth of super-profits of monopolies; 2) technological innovations are a necessary condition holding stable competitive advantages and maintaining leadership, and also serve as a means of global competition for the largest TNCs; 3) innovation is one of the means of creating strategic barriers to entry for potential competitors into the industry.

Monopoly firms have significant investment potential. The investment capabilities of monopoly firms and their propensity to invest are much higher than those of other market participants. One source of investment is monopoly profits, which such firms tend to invest in research, thanks to which they are always able to stay ahead of their rivals or at least stay at their level.

It should be noted that the products of monopolies differ high quality, which allowed them to gain a dominant position in the market.

As for the disadvantages, the main one is that monopolies have market power to obtain monopoly profits. This leads to the disappearance of the desire of monopolistic producers to reduce production costs. This means that there will be no reason to reduce prices for consumers.

To maintain their monopoly position, monopolies establish barriers to entry into the market, which reduces the level of competition in the country's economy.

The activities of monopolies enhance income differentiation (the incomes of the majority of consumers fall, which has a negative impact and leads to a decrease in the profits of monopolists, i.e., the market power of monopolists is weakened), which is fraught with socio-political conflicts and instability. In addition, the possibility arises of merging the power of monopolies with the power of the state and contributes to the emergence of oligarchic structures (their power will correspond to their personal interests, and not to the common good).

IN this section we will look at the market structure under which numerous companies, selling close but not perfect substitute products. This is usually called monopolistic competition — monopolistic in the sense that each manufacturer is superior to its own version of the product and - since there are a significant number of competitors selling similar products.

The basics of the model of monopolistic competition and the name itself were developed in 1933 by Edward H. Chamberlain in his work “The Theory of Monopolistic Competition.”

Main features of monopolistic competition:

• Product differentiation
• Large number of sellers
• Relatively low barriers to entry and exit from the industry
• Fierce non-price competition

Product differentiation

Product differentiation is a key characteristic of this market structure. It assumes the presence in the industry of a group of sellers (manufacturers) producing goods that are similar, but not homogeneous in their characteristics, i.e. goods that are not perfect substitutes.

Product differentiation can be based on:

• physical characteristics of the product;
• location;
• “imaginary” differences associated with packaging, brand, company image, advertising.
• In addition, differentiation is sometimes divided into horizontal and vertical:
• vertical is based on dividing goods by quality or some other similar criterion, conventionally into “bad” and “good” (the choice of TV is “Temp” or “Panasonic”);
• the horizontal one assumes that, at approximately equal prices, the buyer divides goods not into bad or good, but into those that correspond to his taste and those that do not correspond to his taste (the choice of a car is Volvo or Alfa-Romeo).

Creating your own version product, each firm acquires a limited monopoly. There is only one manufacturer of Big Mac sandwiches, only one manufacturer of Aquafresh toothpaste, only one publisher of the Economic School magazine, etc. However, they all face competition from companies offering substitute products, e.g. operate in conditions of monopolistic competition.

Product differentiation creates the opportunity limited influence on market prices, since many consumers remain committed to a particular brand and company even with a slight increase in prices. However, this impact will be relatively small due to the similarity of the products of competing firms. The cross elasticity of demand between the goods of monopolistic competitors is quite high. The demand curve has a slight negative slope (in contrast to the horizontal demand curve under perfect competition) and is also characterized by high price elasticity of demand.

Large number of manufacturers

Similar to perfect competition, monopolistic competition characterized a large number of sellers, so that the individual firm takes a small share industry market. As a consequence, monopolistically competitive firms are typically characterized by both absolute and relatively small sizes.

• On the one side, eliminates the possibility of collusion and concerted action between firms to limit output and raise prices;
• with another - doesn't allow the company in a significant way influence market prices.

Barriers to entry into the industry

Entering the industry usually not difficult, due to:

• small;
• small initial investment;
• small size of existing enterprises.

However, due to product differentiation and consumer brand loyalty, market entry is more difficult than with perfect competition. The new firm must not only produce competitive products, but also be able to attract buyers from existing firms. This may require additional costs for:

• strengthening the differentiation of its products, i.e. providing it with such qualities that would distinguish it from those already available on the market;
• advertising and sales promotion.

Non-price competition

Tough non-price competition- also a characteristic feature of monopolistic competition. A firm operating under conditions of monopolistic competition may use three main strategies influence on sales volume:

• change prices (i.e. implement price competition);
• produce goods with certain qualities (i.e. enhance differentiation of your product by technical specifications , quality, services and other similar indicators);
• review advertising and sales strategy (i.e. strengthen the differentiation of your product in the field of sales promotion).

The last two strategies relate to non-price forms of competition and are more actively used by companies. On the one hand, price competition is difficult due to product differentiation and consumer commitment to a specific trademark(a price reduction may not cause such a significant outflow of buyers from competitors to compensate for losses in profits), with another- the large number of firms in the industry leads to the fact that the effect of the market strategy of an individual company will be distributed among such a large number of competitors that it will be practically insensitive and will not cause an immediate and targeted response from other firms.

It is usually assumed that the model of monopolistic competition is most realistic in relation to the services market ( retail, services of private practicing doctors or lawyers, hairdressing and cosmetic services, etc.). As for material goods such as various types of soap, toothpaste or soft drinks, their production, as a rule, is not characterized by small size, large numbers or freedom of entry into the market of manufacturing firms. Therefore, it is more correct to assume that wholesale market of these goods belongs to the oligopoly structure, and retail market- to monopolistic competition.

Practical tasks and situations

1. On what is the market power of firms of monopolistic competitors based: after all, the volume of their production and sales can be very small?

2. Why, in conditions of monopolistic competition, do firms primarily beat out non-price competition?

3. Monopoly competitive firms do not forget to wish their clients a Happy New Year. Why?

6. The demand function of a firm – an imperfect competitor has the form:

P = 50 – 2∙Q, the function of its total costs is TC = 80 + 2∙Q + 5∙Q 2 .

Determine the price and quantity of output at equilibrium. How will these values ​​change if the market becomes perfectly competitive?

Questions for self-control

1. What is the advantage of monopolistic competition over perfect competition?

2. What is the relationship between price and output under conditions of monopolistic competition?

3. Name the equilibrium condition for a firm under monopolistic competition in long term.

4. What are the conditions for entering the market under monopolistic competition?

5. In conditions of perfect or monopolistic competition, does the firm have a greater potential for survival?

6. Is there a relationship between the number of sellers of a differentiated product and the degree of market power each of them has? If so, what is the nature of this dependence?

7. If firms expand product differentiation, how will this affect economic efficiency functioning of the market?

8. Do firms operating within the framework of monopolistic competition ignore the reaction of competitors to their actions.

9. Will a monopolistically competitive firm increase its output if marginal revenue exceeds marginal cost?

Tests

1. In conditions of monopolistic competition, an enterprise produces:

a) a unique product;

b) differentiated product;

c) standardized product;

d) unified product;

e) homogeneous product.

2. Markets of perfect and monopolistic competition have a common feature:

a) differentiated goods are produced;

b ) there are many buyers and sellers operating in the market;

c) each firm faces a horizontal demand curve for its product;

d) homogeneous goods are produced;

e) the market behavior of each firm depends on the reaction of its competitors.

3. Proponents of the point of view that monopolistic competition is quite effective and beneficial to consumers argue that:

a) product differentiation favors better realization of the diverse tastes of consumers;

b) in conditions of monopolistic competition, firms produce an effective, from the market point of view, volume of products;

c) perfect competition leads to a fierce price war between firms;

d) under conditions of monopolistic competition, efficient, from the point of view of society, use of resources is achieved;

e) all previous statements are true.

4. Product differentiation does not result from:

a) design features of the product;

b) its shape, color and packaging;

c) product prices;

d) special trademark And trademark;

e) a special set of services accompanying the sale of this product.

5. In conditions of monopolistic competition:

a) customer needs are satisfied at a lower level than in conditions of perfect competition;

b) customer needs are satisfied more fully than in conditions of perfect competition;

c) production costs and prices are reduced due to economies of scale;

d) the demand curve is a horizontal line;

e) producers agree on a joint pricing policy.

6. In conditions of monopolistic competition, to maximize profits, a company must:

a) maintain equality of average costs and prices;

b) ensure compliance marginal cost and demand;

c) ensure equality of marginal costs and marginal income;

d) keep total income from exceeding total costs.

7. The main difference between monopoly and monopolistic
competition is as follows:

a) a monopoly is able to appropriate net profit in the long run, but a monopolistically competitive firm is not capable;

b) a monopoly has monopolistic power, but a monopolistically competitive firm does not;

c) the condition P > MR is true for a monopoly, and the condition P = MR - for a monopolistically competitive firm.

8. Which formula is correct under conditions of monopolistic competition for a firm seeking equilibrium in the long run.

a) MR = MS and P = LRAC;

b) P = MS and P = LRAC;

c) P = MS and P = MR;

1. Course of economic theory: general foundations of economic theory. Microeconomics. Macroeconomics. Fundamentals of the national economy: tutorial/ ed. prof. A.V. Sidorovich. - M..: “Business and Service”, 2001, Ch. 18.

2. Course of economic theory: textbook / under general. ed. M.N. Chepurina, E.A. Kiseleva. – Kirov: “ASA”, 2004, Ch. 7, § 7.

3. Microeconomics: theory and Russian practice: textbook / under. ed. A.V. Gryaznova. – M.: KNORUS, 2004, Topic 8.

4. Mikhailushkin, A.I. Economics: a textbook for technical universities / A.I. Mikhailushkin, P.D. Shimko. – M.: “Higher School”, 2001. Ch. 2, § 2.8.

5. Nosova, S.S. Economic theory: textbook for universities / S.S. Nosova. – M.: VLADOS, 2003, Ch. 14.

6. Nureyev, R.M. Course in economic theory: textbook for universities / R.M. Nureyev. – M.: NORM, 2001, Ch. 7, § 7.3.

7. Economics: textbook / ed. A.S. Bulatova. – M.: YURIST, 2001, Ch. 12, § 3.

8. Economic theory: textbook for universities / ed. A.I. Dobrynina, L.S. Tarasevich. – SPb.: PETER, 2002, Ch. 7.

9. Economic theory: textbook / general. ed. IN AND. Vidyapina, A.I. Dobrynina, G.P. Zhuravleva, L. S. Tarasevich. – M.: INFRA-M, 2002, Ch. 15, § 1.

test

3. Advantages and disadvantages of monopolistic competition

There are dynamic and static theories of monopolistic competition and monopoly. From the position of static theory, the following disadvantages of monopolistic competition are studied:

The average costs of the monopolist will be able to exceed the possible minimum level, since they are transferred to buyers;

Perhaps the formation and development of a closed cycle of production stagnation (reducing output to increase prices - reducing employment - decreasing consumption, income, demand; a new cycle of decreasing output, etc.)

In the dynamic approach of monopolistic competition, which was followed by economists of the Austrian school (founder - J. Schumpeter), the focus is on the superiority of the monopoly. Based on the dynamic theory, it is recognized that it is incorrect for supporters of the static approach to focus on price competition, as it is not considered representative in the industry. Companies destroy the very structure of economic sectors with their own innovations (hypercompetition and Schumpeterian competition). These conditions reveal the following advantages of monopolistic competition:

Sustainability of output growth during “creative destruction”, since a monopolist company is protected from competition in the long term and can improve development and research;

Innovations that are introduced by a monopolist, in the long term, lead to a reduction in costs to a level that is unattainable under conditions of perfect competition;

Advertising data is fair, at least in the long term, because buyers think intelligently and manufacturers are not considered fly-by-night companies. The static theory of monopoly is in most cases applicable to mature industries, and the dynamic theory is applicable to growing ones.

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The 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 of 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 an individual 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, 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 selling companies 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, market medicines, clothes, 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 of warranty repairs, free delivery, technical support, installment payment.

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. Control individual companies above prices limited. 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) combats monopolistic activities 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 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: public 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 monopoly conditions:

• 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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