The competition is a prerequisite and characteristic feature of the market. After all, if the basis for the functioning of a market economy put the domination of private ownership of the means of production, which, in turn, acts as a guarantee of freedom of choice for entrepreneurs in their activities, and certainly there is competition between them.
The word competition comes from Latin and means to flee together to compete on some other career. This competition is crucial for establishing market prices, which are the main feature of a market economy. Competition (in the economic sense) - the rivalry of economic activity for its better implementation of economic interests. It should be emphasized that competition - is not only the prerogative of producers and suppliers of goods and services on the market. In a market economy, really compete all the subjects of relations arising during the production and sale of any products. This is a competition of buyers.
Competition buyers distinguish three types:
money that is based on the use of the main principle of distribution of wealth in the market, who paid more money, and he was given good;
based on personal data, giving preference to those who have the best mental and physical abilities, has better education or more experience using them in a position to get some good before others;
on a personal basis, giving preference to those who have a more influential and high officials of relatives, friends and acquaintances (Gelos & Roldos, 2002).
Competition buyers is essential to the functioning of the market mechanism. It should be remembered that the consumer might be not only personal, but also production. Consumed not only the benefits, which are food, clothing and other items for personal consumption. Industrial consumption means using in the production of goods and services, machinery and equipment, raw materials and natural resources.
That the producers themselves appear in the market as buyers and consumers of equipment and materials. It is clear that the market will function very differently, depending on what kind of competition it dominated buyers: cash, based on personal data or based on personal relationships. So, in terms of the pace of development of market economy in money market dominance competition can be seen as neutral option (Dabla-Norris & Floerkemeier, 2007). Domination competition buyers based on personal data would allow for accelerated economic development through priority to obtain the required resources most talented entrepreneurs. The worst option for economic development is competition customers on a personal basis. Under such conditions, open space and inefficient use of direct waste of resources that fall into the hands of people close to the authorities, but are not required for entrepreneurship skills.
Even more important for the functioning of the market mechanism is the competition of sellers. Competition sellers distinguish such species.
Price competition. Its essence is that manufacturers and suppliers to market products and services try to offer them at prices lower than competitors' prices. On the one hand, manufacturers and sellers of goods would have to be interested in high prices for their products to get higher profit (which, in fact, true), but in terms of competition, this principle is somewhat modified. The presence in the market competition keeps vendors from setting ultra-high prices for their products (Dabla-Norris & Floerkemeier, 2007). The general rule can be formulated as follows: the more the market of competing sellers, the lower it prices (ceteris paribus), and conversely, the lower the market competition between sellers of a product, the higher the price for it (ceteris conditions). We emphasize that in this case it is the broadest generalizations. For more information on pricing vendors will be discussed in the next section when considering the main types of competitive markets.
Nonprice competition. This concept includes all other ways to compete (except the price), which do not conflict with existing legislation in the country, namely:
Improved product quality. Improved product quality indicators (better specifications, better drafting, improved design) Allows you to increase the volume of its sales without lowering prices compared with competitors. Moreover, improved product quality indicators, often allows to expand the volume of its sales even at higher prices for it.
Advertising products. Significant expansion of product sales cannot reach those vendors who have successfully used advertising opportunities. A successful advertising campaign sometimes allows increasing the sale of goods even without spending efforts on improving its quality characteristics (Gelos & Roldos, 2002). Not by chance, a significant number of manufacturers in the modern market economy prefers spending on advertising its products as compared to the cost of research and development work related to its real improvement.
The best conditions for the sale of goods and services. The best comparison to competitors in terms of goods and services can mean a number of measures, which manages the seller of a product for a more favorable attitude towards it potential buyer. This may be a longer warranty on the goods sold, the buyer free of its delivery and installation and commissioning of the employees of the manufacturer. Terms of sale include the level of customer service in the store at the time of his purchase and his service in the aftermath of its implementation (i.e. the density of the network of repair shops and service centers performing warranty repair and maintenance of goods sold). A potential buyer may be encouraged additional prizes, gifts that serve a mandatory addition to purchases made or played on the terms of lotteries, and other measures that can give positive results in terms of increased sales compared to competitors (Gelos & Roldos, 2002).
All the above methods of non-price competition combines unique feature, an opportunity to compete without lowering the price of products offered for sale. Sometimes this is the only possible way to competition if the price of goods is on the verge business costs in its production. Although more often used methods of non-price competition due to the reluctance of sellers to lower prices for their products, even if they have the opportunity.
A combination of methods of pricing and non-price competition gives the best results in the competition by winning a particular consumer market (Dabla-Norris & Floerkemeier, 2007). However, sometimes competing sellers of these methods are not enough, and then they begin to apply techniques that combine the concept of unfair competition.
Unfair competition combines all methods of competition that are condemned by society and therefore pursued in accordance with the law. Among the most common methods of unfair competition can result in the following:
Misinformation about their own product (unfair advertising). This method loyalty of consumers rightly considered taboo, because it can be dangerous to society. Where it comes to the overstatement of technical data or products empower its advertising properties, which it really did not matter, its use can lead to serious consequences for both the direct user and for the environment.
Unauthorized use of others' trademarks. In fact, this way of cheating the buyer, which is a modification of the previous one. Typically, alien trademarks used by manufacturers who cannot provide the high quality of its products. The consumer buys a defective product, taking it for high quality products of a reputable manufacturer, and this again can carry a certain risk. A variety of illegal use of another's trademark is the use of similar trademarks. Sometimes it may not exactly replicate trademarks of famous manufacturers to mislead potential customers. It is enough to slightly change the logo or one letter in the name of the firm, and not very experienced buyer acquires it as quality.
Compromise competitors' products. Another way illegal competition. In most developed countries have laws on advertising, which separately emphasized that promotion of its products must not occur using spreading defamatory information about competitors' products. That is why we so often can see on television commercials, where our own products compared with "ordinary detergent", "ordinary soap" and "ordinary toothpaste" although in reality these do not exist (Myers, 2004).
Pressure on suppliers of resources for the competition is one of the most sophisticated methods of illegal competition. Competitive advantage can be obtained by depriving it of necessary resources. Therefore, if there is one source of raw materials or equipment to several competing manufacturers, they may not want to compete on the basis of the money is legitimate competition, and click in one way or another to the resource provider to get rid of their competitors (Norman & Thisse, 2011). Such pressure is usually carried out in secret, which greatly complicates the opposition to this type of illegal competition.
Also there is a secret, hidden form of activities related to illegal methods of competition. Modern manufacturing high quality products are sometimes secret, sometimes sold, but are too expensive. Then apply industrial espionage as a cheaper way to get the right information. Dumping is the sale of products on the market at a price that does not cover the cost of its production. It is clear that if one of the vendors offer such undercharge, it could significantly undermine the position of its competitors in this market (Norman & Thisse, 2011). Having considered the main ways to compete, we can better imagine the consequences. The most important consequence of competition for the functioning of the market mechanism as a whole is its influence on the formation of average prices in some markets of goods and services. As already mentioned, the higher the competition, the lower the falling prices in some markets. So, in highly competitive markets price close to its minimum limit - the cost of the cost of production of goods. Furthermore, price competition is forcing manufacturers to look for ways to reduce these costs (Stackelberg, Bazin, Urch, & Hill, 2011). Reducing costs is only possible through a more economical use of resources, improving the efficiency of the production process. As a result, competition is increasing need to improve productivity, minimize its costs per unit. This problem is solved through the active implementation of the process of production of scientific and technological progress, application of new technologies (Stackelberg, Bazin, Urch, & Hill, 2011). Nonprice competition improves the quality of goods, improve their appearance, making more comfortable to use.
Thus, the positive effects of competition include reducing the cost of production (and therefore lower prices for goods), efficient use of resources, increase productivity, stimulate scientific and technological progress, improve product quality. The negative effects include competition issues arising from the bankruptcy, losing in the competition. First is the problem recurring unemployment. People who lost their jobs, there is always a serious problem for society. On the other hand, bankruptcy losers in the competition can be viewed as a particular industry reorganization and it is an objective process, and the problem of the unemployed often solved by the winners, who are expanding production and feel the need for additional labor, either by appearance new enterprises.
All of the above applies to intra-industry competition, which takes place in a fight between vendors in one separately taken branch. In addition, there is the inter-industry competition that is entrepreneurs in various industries.
Inter-industry competition arising from varying profitability of production and sales in various industries (Sutton, 2001). It takes the form of an outflow of capital from less profitable industries and its accumulation in the more profitable sectors. The outflow of capital from certain industry results in the formation of the deficit are fabricated products relative to existing demand. This allows those producers remaining in it, to raise prices for their products and earn more profits than before. The opposite pattern is observed in areas where capital is accumulated due to high profitability for them. It eventually yield begins to fall due to excess production relative to existing demand and a corresponding fall in prices (Sutton, 2001). Thus, the flow of capital from some sectors to others in search of more lucrative their application entails leveling profitability of different products. In other words, inter-industry competition leads to the formation of the average rate of return for all manufacturing industries.
In actual practice, it is possible to meet the situation where in some areas the use of high yield compared to other capital remains steadfast lengthy intervals. The main reason for this phenomenon are obstacles to penetration into these new industry capitals. These obstacles may have as an objective basis (limited natural resources extracted and processed producers of a particular industry) and occur due to artificial limitations (Sutton, 2001). Accordingly, different commodity markets have different degrees of competition. This will be discussed in the next section.
The degree of competition distinguish these types of markets: the market of pure competition, monopolistic market competition and oligopolistic market. Market also called pure competition perfect competition, and the other two belong to markets with imperfect competition.
Pure competition - a market situation in which many independently operating manufacturers sell identical (standardized) products and none of them was able to control the market price. A large number of manufacturers. The main feature of pure competition is the large number on it regardless of existing vendors offering their products at highly market. As an example, agricultural commodities markets, stock markets and foreign exchange markets.Standardized products. Competing manufacturers produce standardized or homogeneous products. With the current price of consumer, care whom the sellers bought the product. In a competitive market products companies B, C, D, E, and so on are considered accurate analogues of the buyer as a product company A. Due to standardization of products is no basis for non-price competition, that competition because of differences in the quality of products, advertising or sales conditions.Unity prices. In pure competition markets, some producers carry little control over the price of products. This property follows from the previous two. In terms of pure competition each manufacturer produces such a small part of total production, increase or decrease its production will not significantly affect the overall proposal and, accordingly, the price of the product. In other words, a single manufacturer competing shares the price. The competitive firm cannot set the market price, and can only adapt to it.
Refereces
Dabla-Norris, E. & Floerkemeier, H. (2007). Bank Efficiency and Market Structure: What Determines. International Monetary Fund.
Gelos, G. & Roldos, J. (2002). Consolidation and Market Structure in Emerging Market Banking System. Internation Monetary Fund.
Myers, D. (2004). Construction economics. New York: Spon Press.
Norman, G. & Thisse, J. (2011). Market structure and competition policy. Cambridge [etc.]: Cambridge University Press.
Stackelberg, H., Bazin, D., Urch, L., & Hill, R. (2011). Market structure and equilibrium. Berlin: Springer.
Sutton, J. (2001). Technology and market structure. Cambridge, Mass: MIT Press.
