4.3. Monopolistic competition Monopolistic competition, like oligopoly, is an intermediate type of market structure between perfect competition and monopoly. However, there are significant differences between monopolistic competition and oligopoly.

4.4. Perfect competition Perfect competition presupposes the presence of such a large number of sellers and buyers in the market that none of them can significantly influence market conditions by their behavior. This is such competition among economic entities,

54. Unfair competition Competition is the rivalry of economic entities, in which the independent actions of each of them exclude or limit the ability of each of them to unilaterally influence the general conditions of circulation

Examples of a perfectly competitive market make it clear how efficiently market relations work. The key concept here is freedom of choice. Perfect competition occurs when many sellers sell an identical product and many buyers purchase it. No one has the power to dictate terms or raise prices.

Examples of a perfectly competitive market are not very common. In reality, very often there are cases when only the will of the seller decides how much a particular product will cost. But with an increase in the number of market players who sell identical goods, unreasonable overestimation is no longer possible. The price is less dependent on one specific merchant or a small group of sellers. With a serious increase in competition, on the contrary, buyers determine the cost of the product.

Examples of a perfectly competitive market

In the mid-1980s, agricultural prices fell sharply in the United States. Dissatisfied farmers began to blame the authorities for this. In their opinion, the state has found a tool to influence agricultural prices. It dropped them artificially in order to save on mandatory purchases. The drop was 15 percent.

Many farmers personally went to the largest commodity exchange in Chicago to make sure they were right. But they saw there that the trading platform unites a huge number of sellers and buyers of agricultural products. No one is able to artificially lower the price of any product, since there are a huge number of participants in this market on both sides. This explains that in such conditions unfair competition is simply impossible.

Farmers personally saw at the stock exchange that everything is dictated by the market. Prices for goods are set regardless of the will of one particular person or state. The balance of buyers and sellers determined the final price.

This example illustrates this concept. Complaining about fate, US farmers began to try to get out of the crisis and no longer blamed the government.

Signs of perfect competition

These include the following:

• The price of a product is the same for all buyers and sellers in the market.
• Product identity.
• All market players have full knowledge of the product.
• A huge number of buyers and sellers.
• None of the market participants individually influences pricing.
• The manufacturer has the freedom to enter any area of ​​production.

All of these features of perfect competition, as presented, are very rarely present in any industry. There are few examples, but they exist. These include the grain market. Demand for agricultural goods always regulates pricing in this industry, since it is here that all of the above signs can be seen in one area of ​​production.

Advantages of perfect competition

The main thing is that in conditions of limited resources, distribution is more equitable, since the demand for goods determines the price. But the increase in supply does not allow it to be particularly overestimated.

Disadvantages of Perfect Competition

Perfect competition has a number of disadvantages. Therefore, you cannot completely strive for it. These include:

• The model of perfect competition slows down scientific and technological progress. This is often due to the fact that the sale of goods, when supply is high, is sold slightly above cost with minimal profit. Large investment reserves are not accumulated, which could be used to create more advanced production.
• Products are standardized. No uniqueness. No one stands out for their sophistication. This creates a kind of utopian idea of ​​equality, which consumers do not always accept. People have different tastes and needs. And they need to be satisfied.
• Production does not calculate the maintenance of the non-productive sector: teachers, doctors, army, police. If the entire economy of the country had a complete, perfect form, humanity would forget about such concepts as art and science, since there would simply be no one to feed these people. They would be forced to go into the manufacturing sector for a minimum source of income.

Examples of a perfectly competitive market showed consumers the homogeneity of products and the lack of opportunity to develop and improve.

Marginal revenue

Perfect competition has a negative impact on expansion economic enterprises. This is related to the concept of “marginal revenue”, due to which firms do not dare to build new production facilities, increase acreage, etc. Let’s take a closer look at the reasons.

Let's say one agricultural producer sells milk and decides to increase production. On this moment net profit for one liter of product, for example, 1 dollar. Having spent funds on expanding feed supplies and building new complexes, the enterprise increased production by 20 percent. But his competitors also did this, also hoping for stable profits. As a result, twice as much milk entered the market, which dropped the price finished products by 50 percent. This led to production becoming unprofitable. And the more livestock a producer has, the more losses he incurs. The perfectly competitive industry goes into recession. This shining example marginal revenue, beyond which the price will not rise, and an increase in the supply of goods to the market will only bring losses, not profits.

The antipode of perfect competition

It is unfair competition. It occurs when there are a limited number of sellers on the market, and the demand for their products is constant. In such conditions, it is much easier for enterprises to reach an agreement among themselves, dictating their prices on the market. Unfair competition is not always a conspiracy or a scam. Very often, associations of entrepreneurs occur in order to develop common rules of the game, quotas for manufactured products for the purpose of competent and effective growth and development. Such firms know and calculate profits in advance, and their production is deprived of marginal revenue, since none of the competitors suddenly throws a huge volume of products onto the market. Her highest form– a monopoly when several large players unite. They are losing competition. In the absence of other producers of identical goods, monopolies can set inflated, unreasonable prices, receiving excess profits.

Officially, many states fight such associations by creating antimonopoly services. But in practice their struggle does not bring much success.

Conditions under which unfair competition arises

Unfair competition occurs under the following conditions

• A new, unknown area of ​​production. Progress does not stand still. New science and technology appear. Not everyone has huge financial resources for the purpose of technology development. Often, several leading companies create more advanced products and have a monopoly on their sales, thereby artificially inflating the price of a given product.
• Productions that depend on powerful associations into a single large network. For example, the energy sector, the railway network.

But this is not always detrimental to society. The advantages of such a system include the opposite disadvantages of perfect competition:

• Huge windfalls allow you to invest in modernization, development, and scientific and technological progress.
• Often such enterprises expand the production of goods, creating a competition for customers between their products.
• The need to protect one's position. Creation of army, police, workers budgetary sphere, because it frees up many free hands. There is a development of culture, sports, architecture, etc.

Results

To summarize, we can conclude that there is no system that is ideal for a particular economy. Every perfect competition has a number of disadvantages that slow down society. But the arbitrariness of monopolies and unfair competition only leads to slavery and a miserable existence. There is only one result - you need to find a middle ground. And then the economic model will be fair.

1. The concept of competition

Competition

long-term periods

The concept of competition.

Market competition is the struggle for limited consumption demand, waged between firms in the market segments available to them.

Competition forces them to take into account the interests of consumption, and therefore the interests of society as a whole.

According to the degree of development of competition, there are 4 main types of markets:

1. Perfect competition market;

2. Market of imperfect competition, subdivided:

a) monopolistic competition;

b) oligopoly;

c) a monopoly.

The perfect competition model is based on on four main conditions:

1. Products must meet the condition of product homogeneity. This condition effectively means that price differences are the only reason why a buyer would choose one seller over another.

2. Neither sellers nor buyers influence the market situation in the industry due to the smallness and number of all market entities. The volume of consumer purchases (or sales by the seller) is so small that a decision to decrease or increase this volume creates neither a surplus nor a shortage.

Market actors are unable to influence prices.

3. Barriers to entering the market any competitive advantages of firms already operating in the industry compared to those trying to get there are called.

The most typical barriers to entry are:

Large starting capital required to open a business;

Uniqueness of the product or technology used;

Legal restrictions.

Market exit barriers are called:

- losses inevitable when trying to withdraw a business from a given industry and move it to another. Most often, the exit barrier is high sunk costs, i.e. the need to sell the company's assets that have become unnecessary for next to nothing.

- There are also legal restrictions. For example, by providing a lease for a certain area for a store, the municipality can stipulate the preservation of its profile for a certain time (for example, not to close a socially important pharmacy in a residential area).

The condition of the insurance company is the absence of barriers to entry and exit from the market.

When such barriers exist, sellers begin to behave as a single corporation, even if there are many of them and they are all small firms.

In Russia, such restrictions are widely observed in fruit and vegetable markets, which are almost impossible for a simple peasant to penetrate.

4. Information about prices, technology, probable profits, etc. is freely available to everyone. There are no trade secrets. Those. the firm makes decisions in conditions of complete certainty regarding the market situation.

In reality, markets that fully satisfy the conditions of the insurance company do not exist.

For all its abstractness, the concept of SC plays an important role:

Firstly, the model is perfect competitive market allows us to judge the principles of functioning of those markets where there are many small firms offering similar products, and where conditions have developed that are close to the conditions of the middle class.

Secondly, it allows - albeit at the cost of great simplifications of the actual market picture - to understand the logic of the company's actions.

Perfect competition criterion

Taking into account the listed conditions of SC-ii, the demand curve for the company's products will look like a horizontal line (absolute elasticity of demand).

The presence of perfectly elastic demand for a firm's products is usually called criterion of perfect competition.

Principles of firm behavior in a perfectly competitive market

Profit maximization as the main motive of the company's behavior.

Profit- the difference between total income and total costs during the sales period.

In the conditions of the middle class, the most important decisions on managing a company are primarily related to establishing the volume of production that allows achieving maximum profit.

What are the criteria for choosing the optimal volume??

Before answering this question, each company must fundamentally decide whether it is worth engaging in production at all. Those. find a criterion for the feasibility of production.

This criterion is different for short-term and long-term periods.

Long term

If we talk about the long term, then it is obvious that such a criterion will be the presence of non-negative economic profit. At a minimum, the firm must earn an accounting profit. In case of losses, the owners resort to liquidation, i.e. closing and sale of property.

Working with losses, the company has to make loans that it is not able to repay. Sooner or later, such a policy leads to bankruptcy, or insolvency, i.e. to the firm's inability to pay its obligations.

After a company is declared bankrupt (by court), the former owners are removed from its management, and the property is used to cover debts to creditors.

Bankruptcy Institute is one of the most important mechanisms for ensuring the social responsibility of entrepreneurs in a market economy.

Having freedom of enterprise, i.e. the right to arbitrarily make any (legal) business decisions, entrepreneurs must pay for possible mistakes with the loss of their property.

Discontinuation of production

In the event that the market price of a product is below the minimum value of average variable costs, the firm stops production.

Indeed, this price not only does not cover all costs, it is not able to fully cover variable costs. Those. each unit issued to an inevitable loss in the amount of fixed costs It also adds the uncovered part of the variable costs associated with the production of this particular product.

ATS

The amount of losses at production volume Q1 is equal to the area of ​​the entire shaded rectangle (ATC1-P)xQ1.

AFC1=(ATC1-AVC1)xQ1 – on the graph they are equal to the area of ​​the rectangle between the average cost curves.

The entire portion of the shaded rectangle below the AVC curve and before the price is a net loss due to failure to discontinue production.

By shutting down the plant, you can save money on them. This is exactly what many firms find themselves doing in difficult situations.

In practice, another motive often plays an important role in temporarily stopping production: the pause allows you to clear warehouses by selling off previously accumulated unsold surplus of finished products.

Please note that a short-term cessation of production does not mean the liquidation of the enterprise (company) itself. The company is simply forced to temporarily stop production. It will stand until the market price increases to a level at which production makes commercial sense. But the company can also be convinced of the long-term nature of the price decrease. Then it will finally cease to exist.

Release optimization

The choice of a fundamental behavior option (maximizing profits, minimizing losses, temporarily stopping production) represents the first step of a company towards optimizing its position in the market.

The next step is to pinpoint the level of production that will maximize profits or minimize losses.

As we have already said, this can be done by directly comparing gross income and gross costs. This is exactly what individual entrepreneurs of small firms often do, who do not have the opportunity to rely on powerful accounting departments, but from practical experience they know very well both the market price and all types of their costs.

But more in an exact way Determining the optimal size of production is a comparison of marginal revenue and marginal costs.

Increasing output increases profits only if the income from the sale of an additional unit of production exceeds the production costs of this unit, i.e. if MR is greater than MC.

On the contrary, when the costs associated with the production of one more unit of product are higher than the income MR generated through its sale, it is less than MC, then, by producing the corresponding portion of the product, the firm only reduces its profits or increases losses.

Therefore, the maximum profit is achieved at the intersection point of MR and MC.

This pattern in economics is usually called rule of equality of marginal revenue and marginal cost. According to it, profit maximization (loss minimization) is achieved at a production volume corresponding to the point of equality of marginal costs and marginal revenue.

This rule is true not only for perfect competition, but also for other types of markets.

Under conditions of perfect competition, profit maximization (loss minimization) is achieved at a production volume corresponding to the point of equality of marginal costs and prices.

a) Profit maximization

b) Minimizing losses

ATS

c) cessation of production

On graph a) Let us note that the production volume Q0 in the case of profit maximization is greater than the production volume Qmin, which would correspond to the minimum level of average total costs, i.e. technological optimum of production.

Economic sense This is that at point Qmin the maximum profit per unit of output is achieved. The graph shows that it is here that the distance between the ATC and P curves is greatest. However, the firm does not maximize the specific profit per unit of output, but the gross profit from all production. Therefore, it makes no sense for her to refuse to produce units of output lying between Qmin and Q0.

Even if their profits per unit of output are somewhat lower, they will also contribute to the increase in gross profit. The inequality MR›MC applies here, which means the firm benefits from the release of each unit of additional output.

Graph b) shows the situation of minimizing losses. The company and in this case focuses on the MR=MC rule, choosing the production volume Q0. In this case, it turns out to be technologically inferior optimal level Qmin.

Those. at a reduced price level (when they are below the break-even point), the technological optimum becomes economically unattainable. During the protracted crisis in our country, many domestic enterprises experienced this pattern: the low level of demand forces them to underutilize their production capacities.

When production is stopped, the MC=MR rule does not apply .

Thus, this rule has the limitation that it is not applicable at price levels below the minimum value of average variable costs.

By studying a firm's behavior at different price levels, we are essentially describing its supply curve.

The MC curve of a competitive firm in the short run will simultaneously be its supply curve for that period.

Consequently, the product supply curve in the short run is limited only by that segment of the marginal cost curve MC, which is located above the minimum point of the average variable cost curve. In other words, the supply curve coincides with the marginal cost curve only at MC › AVCmin.

The supply curves of individual firms make up the supply curve of a competitive industry.

Perfect competition model.

1. The concept of competition

2. Principles of behavior of a company in a perfect market

Competition

3. Equilibrium of a competitive industry in the short-term and

long-term periods

The concept of competition.

The behavior of a company and its choice of production volumes depend on the type of market in which it operates.

The most powerful factor dictating the general conditions for the functioning of a particular market is the degree of development of competitive relations in it.

Differentiation is the variety of a product; product differentiation leads to the fact that a single market breaks up into separate, relatively independent parts.

3. Describe the features of an oligopolistic market. What is the main barrier to entry into an oligopolistic industry?

It is a market dominated by a few large firms, i.e. a few sellers facing many buyers. Although there is no clear quantitative criterion for oligopoly, there are usually from three to ten firms in such a market.

The barrier to entry into the industry is ownership of non-renewable resources and monopoly access to sources of raw materials.

4. Explain the principle of choosing the optimal size of output under conditions of monopolistic competition.

The profit-maximizing output of QSR is determined by the intersection of the marginal revenue and marginal cost curves (MR=MC).

5. List the main types of oligopoly.

Uncoordinated oligopoly, Cartel (or collusion) of firms, Cartel-like market structure (or “playing by the rules”)

6. The inefficiency and losses for society associated with monopolistic competition are often emphasized:

the firm is not operating at the lowest point of its long-run average cost;

the gap between price and marginal costs, as in conditions of pure competition, means a certain “underproduction” of products;

reduction of a large number of small firms, since their presence on the market would lead to lower prices.

Do you have any arguments in defense of monopolistic competition?

Legal (lat. legalis - legal) monopolies formed on a legal basis. These include the following forms of monopolistic organizations: the patent system, copyrights, trademarks - all this protects our market from substandard goods.

• 7. What are the positive and negative consequences of market oligopolization?
• - large firms have significant financial opportunities for scientific developments and technical innovations;
• - competition between firms included in oligopolies contributes to the development of scientific and technical progress.
• - oligopolies are not so afraid of competitors, since it is almost impossible to penetrate the industry. Therefore, they are not always in a hurry to introduce new equipment and technologies;
• - by concluding secret agreements, oligopolies seek to benefit at the expense of buyers (for example, they increase prices for products), which reduces the level of satisfaction of people's needs;
• 8. What level of prices, output volumes and profits develop under the rule of cartels?

So, this whole thing is not much different from a similar task for a multi-factory company. First, in accordance with the MR=MC rule, the total production volume of the cartel as a whole is established, and MC is formed by horizontally summing all cartel participants. At point Qk the optimal production volume of the cartel is established. In accordance with the demand curve D, such a volume can be sold at a price Po. Now the selected volume needs to be distributed among the participants. Each participant must produce goods in a volume at which its marginal costs will be equal to the profit-maximizing level of marginal costs of the entire cartel. Qa and Qb are the corresponding volumes of firms and production levels for each cartel participant. Of course, each participant will produce as many products as needed to fulfill the rule

Thus, if we consider the cartel as a single whole, the described procedure is ideal, since 1) the cartel produces the optimal volume of products from the point of view of profit maximization; 2) distribution of this output among participants minimizes costs.

In short, the output of cartel members will always be equal to the cartel's optimal output. Moreover, with this method of quota distribution, the marginal costs of all its participants and the entire cartel are equal, i.e. condition is met

Typically, firms with different levels costs Therefore, the profit of one company may be greater than that of another. In other words, when a cartel is created, some participants benefit more than others. Therefore, it is not profitable for firms with small profits to participate in the cartel, and in order to interest them, firms with large profits share in one form or another with those who are not interested.

9. What are syndicates? Describe the role of cartel agreements in Tsarist Russia and in modern conditions in our country.

Syndicates were common in Russia at the beginning of the century - associations of manufacturers who own a single subsidiary, which is the only seller of their products, that is, in fact, a monopolist. Since there is no direct collusion between oligopolists, only an agreement with society, antimonopoly legislation is powerless.

Cartels had a sharply negative impact on the Russian economy in the early 20th century. There was an increase in prices, an understatement of production volumes, a “hunger of goods”, a deliberate deterioration in the quality of products and a slowdown in technical progress. Cartels were banned in Tsarist Russia much earlier than in the West, which led to the emergence of syndicates. Due to legal prohibition in modern Russia cartels do not exist, but the practice of one-time price collusion is very widespread, which leads to periodic shortages of certain goods. Often, various associations of manufacturers or importers try to carry out functions close to cartels.

10. What are the specific conditions of the monopolistic competition market?

A monopolistic competition market consists of many firms offering their goods at prices that fluctuate over a wide range. The presence of a wide range of prices is explained by the ability of sellers to offer buyers different variants goods. The products are not completely interchangeable and differ from each other not only in physical characteristics, quality, design, but also in consumer preference. The differences between the products justify the wide range of prices. Buyers take into account the differences in offers and are willing to pay different prices for goods. To differentiate themselves beyond price, sellers strive to develop multiple offerings for individual consumer segments and make extensive use of branding, advertising, and targeted sales techniques to specific consumers or specific groups of consumers. An example of a monopolistic competition market is the production of clothing, soft drinks, washing powder, computing equipment, and computers. In a market of monopolistic competition, a company becomes, as it were, a “monopolist” of its brand of product. The monopolistic competition market has the following features: 1. Intense competition between firms. 2. Differentiation of goods produced by competing firms due to differences in properties and the provision of unequal additional services. 3. Ease of market penetration. The peculiarity of marketing in these conditions is to identify the specific needs of buyers of different market segments. In conditions of monopolistic competition, a company sets its price using a specific strategy. The most common strategy is geographic pricing, where a firm sells products to consumers in different parts of the country according to different prices

11. Describe the features of a monopolistic market. What barriers limit the access of new firms to it?

Peculiarities monopolistic market:

There is only one manufacturer on the market that supplies a product without close substitutes.

The monopolist is opposed big number isolated consumers who do not individually influence the price

The monopolist is active in the market, the company chooses not only the volume of production, but also the price price-searcher, consumers are passive, forced to adapt to the price of the monopolist

The monopolist works with the demand curve of the entire industry i.e. sets the price so that all products are purchased by the consumer

In a monopoly market, the supply curve disappears, as the monopolist looks for price-volume options along the demand curve.

The main barriers existing in a monopolistic industry are:

Advantages of large-scale production up to natural monopoly

Legal barriers: monopoly ownership of sources of raw materials, land, rights to scientific and technical achievements, state-sanctioned exclusive rights, unfair competition.

12. Market equilibrium under monopoly conditions.

According to some estimates, about 75% of all enterprises in economically

developed countries compete in markets where sales functions under conditions of monopolistic competition. The competitive environment is full big amount small and medium-sized enterprises, none of which have a significant share of total sales. The key competitive feature of such a market is the absence of widely known leaders who have a significant influence on the development of conditions and trends in the industry. This condition can be explained by economic and historical reasons:

• -low “entry” and “exit” barriers in the industry;
• -lack of economic feasibility of large scale

production due high degree product differentiation, needs

buyers in individually manufactured goods, significant differences in markets located in different territories and other reasons that do not allow organizing mass large-scale production and achieving the economic effect on unit costs;

• -state regulation of business in order to maintain a high level of competition in the industry;
• - “youth” of the industry, when none of the enterprises has yet accumulated

experience and means to occupy a large market share.

a) short-term time interval | b) long-term period |

Some markets where monopolistic competition prevails

are consolidated as they develop. Fierce competition destroys weak, inefficient enterprises and leads to greater concentration of production in large, powerful companies. However, this does not always happen. Often by economic reasons enterprises are not able to destabilize the current situation due to the fact that none of them can radically change the above characteristics of the competitive environment.

In conditions of monopolistic competition, each enterprise, having achieved equality of marginal costs (MC) and marginal revenue (MR), can receive economic profit. However, in the future, other enterprises will appear on the profitable market. This partially reduces demand, thereby “lowering” the demand curve for each “old” firm. Their struggle to maintain their market share, as a rule, increases the costs of production and sales of products. The emergence of “new” enterprises will continue until a long-term equilibrium is established, reducing income

13. What is price discrimination? What types of it do you know?

Price discrimination is the setting of different prices for the same product sold to different buyers, or the setting of different prices for different units of the same product sold to the same buyer.

There are several types of price discrimination by degree:

• 1st degree: perfect discrimination: each unit of goods is sold to the individual who values ​​it highest, that is, the consumer pays the maximum price for him for the product; an abstract situation.
• 2nd degree: a monopolist sells a product at different prices, but everyone who buys the same number of units of the product pays the same price, that is, if you buy more, you pay less.
• 3rd degree: different prices are set for buyers with different levels of financial security.

In Russian conditions, both 2nd and 3rd degrees of discrimination are widespread. The 3rd degree of discrimination in Russia is clearly visible in the system of telephone tariffs: low-income citizens pay less than the majority, firms and organizations pay more. The second degree is even more common in modern conditions. Example: discounts in stores during a pre-New Year sale or at a company purchasing consumables for a product previously purchased there.

• 14. Do you agree with the statement: “A pure monopolist can raise the price of his product unlimitedly: after all, he is the only producer in the industry. The demand curve for his product is absolutely inelastic.” Do you agree with this statement
• 15. How is antimonopoly policy implemented in relation to natural and artificial (entrepreneurial) monopolies?

B. When characterizing the equilibrium of a monopolistic competitor firm in the long run, specifically justify the following points:

Can equilibrium under monopolistic competition be reached at the same point on the cost curve as under perfect competition (tangent to the minimum average total cost)?

Explain why monopolistic competition occurs only with a differentiated product, and oligopoly with both a differentiated and homogeneous product.

Which market is more monopolized? Compare two markets: market No. 1, in which there are three firms that control 50%, 40%, and 10% of production, and market No. 2, in which there are firms that control 35%, 35%, and 30% of production.