Competition is free: concept, mechanism, pricing

The main feature of any market is competition. Along with the supply and demand, this element ensures its functioning.

Definition of term

In fact, competition is called different types of economic competition between those firms, companies and entrepreneurs who are engaged in the production of goods or services. The goal of their confrontation is getting more favorable conditions for conducting production activities, selling their product and, consequently, increasing the volume of profit.

The essence of competition

The presence of competition is an incentive for entrepreneurs to seek more favorable solutions to emerging production issues and problems. The competition has a special effect on the quality of the product, as well as on the speed of its sale.

Sometimes the forms of economic rivalry reach grandiose proportions, and the intensity of passions and emotions reaches such a level that the expression "competitive struggle" becomes more than appropriate.

Than competition is useful for the market

Entering the market, manufacturers are forced to constantly defend their positions, otherwise they will be among the numerous inconspicuous sellers of typical products. To attract the attention of the buyer, they apply new technologies, update the range, closely monitor new scientific and technical developments and introduce them into their production processes. In addition, in the interests of the producer - the application of a rational approach to the distribution of their resources (material, labor, financial).

The presence of competitive conditions on the market allows consumers to use the most effective, efficient, attractive and cost-effective products.

Types of competition

Such a significant concept as "competition" unites a large number of narrower terms. There is a classification of competition on different grounds, as a result of which these types are distinguished:

• Intra-industry.
• Intersectoral.
• Conscientious.
• Unfair.
• Price.
• Non-price.

From the point of view of restrictions that operate on the market, there is competition free (pure, perfect) and imperfect. Further, the features of the functioning of the market under conditions of perfect competition will be considered .

Market economy of free competition

Perfect is called competition, in which there are numerous buyers and sellers (producers) on the market who individually occupy a rather small segment of the market and can not set any conditions for the sale or purchase of products.

It should be noted that perfect free competition is considered, rather, a theoretical concept that is extremely rare in the real world (for example, the securities market is the closest to this model).

With free competition, information about price fluctuations, the state of supply and demand, and also about manufacturing enterprises and buyers becomes public even at the interregional level.

Another feature of pure competition is free pricing. That is, the price is set not by the producer, but by the ratio of demand and supply.

Signs of the market for perfect competition

One can judge the situation in a particular market by studying the features that characterize the system of free competition:

1. Numerous sellers (and buyers) represent similar types of products (or consumer interest) and are equal in their rights.
2. There are no barriers that can prevent a new participant from entering the market.
3. All market participants have access to full information about the product.
4. The goods sold are homogeneous and divisible.
5. The absence of the possibility of applying non-economic means of influence on the part of one participant in relation to others.
6. Production factors are characterized by mobility.
7. Free pricing.
8. There is no monopoly (one seller), a monopsony (one buyer) and the state's influence on price formation or the state of supply and demand.

The absence of at least one of the listed features does not allow to say that the competition is free (in that case it is imperfect). At the same time, deliberate removal of signs for the formation of a monopoly leads to unfair competition.

How perfect competition is useful for the economy

The mechanism of free competition allows to form special conditions on the market, which benefit both producers and consumers of the product:

• It's no secret that some decisions of a specific person or organization can significantly affect the achievement of the desired goals. The advantage of having competition on the market is the depersonalization of solutions to economic problems, since there is no personal involvement of an entrepreneur or government official. However, it makes no sense to complain about the obstacles that arise from the game of competitive market forces.
• The conditions of free competition dictate unrestricted freedom of choice. Any participant in the market is given the opportunity to select the field of professional activity in a free order, to perform purchases, to conduct economic activities. Limitations can be made only by the degree of talent, and also whether the entrepreneur is able to accumulate the necessary capital.
• The main advantage of pure competition can be considered the formation of such conditions for the producer and the consumer, when they both benefit.
  The described factor comes into effect due to the balancing of the demand and supply indicators and the formation of the equilibrium price. This concept characterizes the level of prices that corresponds to the marginal utility of the goods for the buyer and corresponds to the level of production costs.
• The market with free competition can be called a regulator of social production, since with its help a solution of a number of specific economic problems becomes available. It ensures the existence of conditions for the optimal use of scientific and technical developments that are used in the production of new products (introduction of new techniques and technologies, development of improved methods for organizing and managing the production process). Participants in market relations are forced to adapt and adapt to new requirements for quality, appearance and product value.
• The goal of a free market system is the ultimate human need. Thanks to this, the entire economy is oriented to consumers and their requests (which are expressed in effective demand).
• The market in which perfect competition operates (free, clean) is characterized by an optimal distribution of limited resources: they are used where this can be done as efficiently as possible.

The role of the state in market relations

The opinions of many economists agree that the market structure is not able to meet the needs of all members of society, therefore, it is necessary to introduce another institution capable of coping with this task. These functions are assumed by the state. In order to restore equilibrium in the market, the state takes some measures that regulate market relations and competition, including. The main legal act is the Federal Law "On Protection of Competition", its provisions are aimed primarily at creating obstacles to the formation of monopolies.

Disadvantages and problems of free competition

In the list of the main socio-economic problems that can not be resolved by the market, the following can be listed:

• Impossibility of providing the economy with sufficient financial resources. Therefore, the state is engaged in organizing the monetary circulation of the country.
• Lack of ability to meet specific needs of society. Competition is free to meet those needs that can be expressed in individual payment demand, but other (roads, dams, public transport and other goods intended for collective use) should be taken into account.
• Inadequate flexible system of income distribution. The market mechanism perceives as fair any kind of the income received at competitive struggle. However, social layers such as disabled people, pensioners, poor and disabled citizens are not taken into account here. For this reason, government intervention and redistribution of income becomes a necessity.

In addition, the functioning of the market of perfect competition does not provide for a careful attitude to non-reproducible resources and care for their safety. To avoid exhaustion and irrational use of forests, subsoil resources and marine resources, and also to avoid the extermination of certain species of animals and plants, the state is forced to introduce strict rules and laws. FZ "On Protection of Competition" is important, but not unique, as the market is a rather complex structure, and its regulation requires consideration of many factors.