Competition and market structure. Characteristics of types of market structures Market structure and its types

structure market commodity indicator

Market structure is a complex concept with many facets. It can be determined by the nature of the objects of market transactions. Market structure can be viewed in terms of the nature of competition.

The actions of various business entities depend on the specific conditions in which they are located. In real life, there are almost an infinite number of such diverse combinations. It seems impossible to analyze all possible multivariance. From the infinite variety of the concrete, economic theory singles out and explores several basic, most characteristic situations that develop in the market. As a rule, four types of market structures are distinguished:

• - pure (perfect) competition;
• - pure monopoly;
• - monopolistic competition;
• - oligopoly.

Perfect competition is the state of economic entities in the commodity market, in which none of them has a large enough market share to influence the price of the product. Since the model of perfect competition is a theoretical abstraction, all real markets are imperfect to some extent.

Imperfect competition is a characteristic of a market where two or more sellers, with some (limited) price control, compete for sales. In theory, there are different types of markets with imperfect competition (according to the degree of decreasing competitiveness): monopolistic competition, oligopoly, monopoly.

The main difference between all types of market structures from the point of view of economic science is how many sellers are on the market and what opportunities it has in terms of forming market prices.

In real life, there is no only pure (perfect) or only "pure" monopoly with imperfect competition. Perfect competition and "pure" absolute monopoly are two polar market situations.

Perfect competition means, firstly, that there are many independent firms on the market, independently deciding what to create and in what quantities. Secondly, no one and nothing restricts access to the market and the same entrance to it to everyone. This implies the opportunity for every citizen to become a free entrepreneur and apply his labor and material resources in the sector of the economy that interests him. Buyers must be free from discrimination and be able to buy goods and services in any market. Thirdly, products for a specific purpose are identical in terms of their most important properties (not differentiated). Fourth, firms have no part in controlling market prices.

These seemingly simple conditions are rarely met in practice. Even a completely identical product may appear heterogeneous to buyers due to, for example, the location of the point of sale, terms of service, advertising, packaging features, and the like. In fact, perfect competition is a rather rare case, and only some of the markets come close to it (the market for grain, securities, foreign currencies). But in relation to Russian activities, even these markets cannot be said to be close to perfect competition.

Monopolistic competition arises where dozens of firms operate, collusion between which is practically impossible. Each company acts at its own risk and determines its own pricing policy. It is almost impossible to predict and take into account the actions of all other participants in the competitive process. Monopolistic competition develops where product differentiation is necessary, where it is necessary to take into account the tastes of the consumer to a greater extent when marketing their products. In conditions of monopolistic competition, there are no high barriers to entry into the industry. True, this does not mean that there are none at all. These may be licenses, patents, trade marks or trademarks.

The theory of monopolistic competition was developed by E. Chamberlain. He drew attention to the fact that product differentiation leads to the fact that instead of a single market, a network of partially isolated but interconnected markets is formed, there is a wide variety of prices, costs, output volumes of a particular commodity group. Differentiation does not exclude the monopoly on the product. The power of monopoly, however, does not extend to the broader class of goods of which the monopolized product is a subset.

At the same time, the presence on the market of similar substitute products limits the firm's ability to raise prices. When there are similar products on the market, consumers are very sensitive to their price.

Thus, we can talk about the emergence of monopolistic competition in the market when:

• - there are many competing firms in the market offering differentiated products;
• - each firm has some ability to influence the price at which it sells its goods;
• - there are no barriers to entry and exit to the market;
• - there is an unloaded capacity.

This type of market competition occurs in industries where:

• - for the implementation of production activities, it is not necessary to create especially large enterprises, and therefore the organization of firms does not require very large funds;
• - it is possible to create many varieties of goods that satisfy a specific need;
• - the rights of individual firms to the exclusive production of the created variety of goods can be protected by copyright.

Typical examples of this kind of commodity markets are the markets for food, clothing, furniture, and so on.

An oligopoly is a type of market structure in which a small number of sellers operate. Very significant barriers prevent new firms from entering the market.

The oligopolistic type of market structure is characterized by the following features:

• - the presence on the market, in the industry of a small, insignificant, relatively small number of manufacturers, sellers of a certain type of product;
• - products can be both standardized and differentiated;
• - entry into the industry is difficult;
• - the behavior of each competitive firm depends on the reaction of competitors.

In contrast to the types of markets discussed above, an oligopoly assumes the presence of a small number of competing firms, which is determined by the necessary economies of scale in the production of a particular type of product, which reduces costs per unit of product. The minimum efficient scale is so large that there are only a few firms operating in the market that achieve these indicators. An industry cannot have more producers of a particular product. For each industry, each market for a certain type of product, the concept of scarcity, as well as the assessment of economies of scale, will be specific.

In this regard, an important characteristic of the oligopolistic structure is the concentration of the market. This category reflects the degree of dominance in the market by one or more firms. Each industry has its own level of concentration. In practice, various indicators are used to measure this process. One is the concentration ratio, which shows the percentage of all industry sales, or the share of total industry sales, attributable to the top three firms.

For an oligopolistic market, it does not matter whether standardized or differentiated products are brought to the market. A number of goods (eg metals) are standardized, and many (eg cigarettes, food, household appliances) can be differentiated.

Entry into the industry in an oligopolistic market model is difficult. And one of the reasons is economies of scale. The entry and functioning of new competitors dictates that they have the same scale to achieve efficiency. Possible expansion involves the displacement or absorption of existing firms and leads to their reduction. It is appropriate to assume that such large producers already own certain patents or licenses, they have the exclusive right to sources of raw materials and other factors of production. They have access to significant financial costs for large-scale advertising campaigns. Of course, this creates additional difficulties for entering a particular market.

The change in the scale of production is very often associated with integration. Integration is the unification of technologically homogeneous industries (horizontal integration) or industries that form a single technological chain, from the extraction of raw materials to the production of finished products (vertical integration). Horizontal integration produces economic benefits through common R&D, joint sales and repair services, joint advertising efforts, and so on. Vertical integration, in addition, provides savings from reducing the cost of conducting market operations, ensures the reliability of sales and supplies.

The presence and level of industry barriers characterize the probability of new competitors appearing in the industry and the old ones exiting it. Barriers to entry arise when some labor or asset is available to only a few competitors. Access to sources of capital is rarely a barrier to entry, as raising capital is usually easy. On the other hand, limited access to new technologies and patents, when only a handful of scientists own such technologies, can become an insurmountable obstacle for new competitors. Barriers to exit arise when competitors are better off staying in the industry even if their profits do not cover the cost of capital. Barriers to exit are often found in capital-intensive industries in which firms earn more than their marginal cost and are therefore reluctant to exit despite very low returns on capital. Moreover, company leaders sometimes continue to invest in low-margin industries for a long time because they do not want to close their organization or hope that someone else will be the first to leave the industry.

The existing restrictions in this process are determined by the possibility of combining existing manufacturers. The forms of such associations can be very diverse - from cartel agreements to concerns. A cartel is an association of firms coordinating their decisions about prices and volumes of production as if they had merged into a pure monopoly. The basis of the merger may also be the small number of producers in a given market, which forms a prerequisite for an agreement; and the desire to increase economies of scale in production; and already achieved economies of scale, which provided economic power in the market, and now realized in the merger of competitors. These factors, of course, make it difficult and limit the entry of new competitors into the industry.

The most important characteristic, distinctive feature of the oligopolistic market, which stems largely from the small number of functioning participants, is the relationship, interdependence between competing firms. Possible changes in sales volume, product quality, prices require consideration of the likely behavioral responses not only of consumers, but also of competitors.

Of course, it is extremely important to calculate costs, take into account demand, build a pricing policy, but it is just as important in an oligopoly to anticipate the reaction of other producers operating in the same market. The actions of one objectively cause adequate measures of the other. Each manufacturer, each firm, each seller, when planning their specific steps, must provide for the response of competitors. This interdependence is a special feature, a property characteristic of an oligopolistic market. The response of other market participants is very difficult to predict and introduces an uncertainty factor that plays a significant role in the construction of a firm's behavior model in an oligopoly. The interdependence of producers, possible responses can manifest themselves in a variety of forms - from fierce competition to the development of joint measures, the conclusion of agreements, the merger of firms.

The oligopoly market can be divided into two types: the first type of oligopoly is an industry with a completely homogeneous product and a large size of enterprises.

The second type of oligopoly is a market of several sellers selling goods of different quality.

There are three main types of oligopolistic behavior:

• - a secret oligopoly, when oligopolists can fully agree, the market price will correspond to the situation of a single monopolist;
• - oligopoly of dominance, when the largest firm in the industry controls 60-80% of the industry's sales volume, several lines of behavior can be chosen;
• - monopolistic competition (it was discussed above), when there are many sellers and buyers, entry and exit from the industry is free, and each firm does not directly affect the prices of other firms. This case is closer to a perfectly competitive market.

A monopoly is a type of industry market in which there is only one seller of a product that has no close substitutes. The monopolist exercises control over the price and quantity of output, which allows him to receive a monopoly profit. With a monopoly, there are prohibitively high barriers to entry into the industry.

Monopoly arises when and where barriers to entry are difficult to overcome. This may be due to economies of scale as well as natural monopoly. Natural monopolists are economic entities that have at their disposal rare and freely non-reproducible material goods or services - land, minerals, gas, electricity, and so on. In this case, the main reason for monopoly is economies of scale or economies of scale.

Random, temporary monopolists that arise due to random circumstances can be created in conditions where there is an exceptional opportunity to manufacture or sell a certain type of product or to have the best factors of production - equipment, technology, labor.

The strength of the monopoly power of an individual enterprise, however, should not be exaggerated. Even a pure monopoly has to reckon with potential competition. This competition may intensify due to innovations, the possible emergence of substitute products, and competition from imported goods.

Along with the monopoly on the part of the manufacturer, there is a monopoly on the part of the buyer - monopsony. A monopsonist buyer is interested and has the opportunity to buy goods at the lowest price (for example, the military industry).

A bilateral monopoly is a market structure where a monopolist is opposed by a monopsonist.

Quasi-monopoly markets are markets in which monopoly power exists at a relatively low concentration of sellers.

Thus, a monopoly can be defined by the following features:

• - the presence of one producer or consumer;
• - lack of close substitutes for the product;
• - the presence of high barriers to entry into the market.

A natural monopoly is characterized by:

• - positive economies of scale in the long run due to technological reasons;
• - the presence of one (two) large firms in the industry;
• - there may be other firms that will be unprofitable in the long run;
• - unregulated profitable pricing of large firms above marginal and average costs.

Market monopolization is an objective economic trend that arises in the depths of commodity production and reflects the interests of large producers. In a monopolized market, the actions of monopoly producers are contrary to the interests of consumers.

The degree of market monopolization is controlled by Russian legislation, namely the Ministry for Antimonopoly Policy, which is supervised by the First Deputy Prime Minister of the Russian Government. The implementation of state policy to promote the development of commodity markets and competition, prevent, restrict and suppress monopolistic activities and unfair competition is carried out by the federal executive body - the federal antimonopoly body.

Within the framework of the national economy, state bodies exercise control over the behavior of individual corporations in the market and, through the judiciary, eliminate violations of the law.

In accordance with the Law of the Russian Federation "On Competition and Restrictions on Monopolistic Activities in Commodity Markets", the position of an economic entity whose share in the market of a certain product is 65% or more is recognized as dominant, unless the economic entity proves that, despite exceeding the specified size, its market position is not dominant. The dominant position is also recognized as the position of an economic entity, the share of which in the market of a certain product is less than 65%, if it is established by the antimonopoly authority, based on the stability of the economic entity's share in the market, the relative size of market shares owned by competitors, the possibility of access to this market by new competitors or other criteria characterizing the commodity market. The position of an economic entity whose share in the market of a certain product does not exceed 35% cannot be recognized as dominant.

The market is an organized structure that includes sellers and buyers, producers of goods (services) and their consumers. Their interaction leads to the establishment of market prices.

The structure of the market is its most significant features, which include: the number of firms and their size, the degree of difference or similarity of goods, the ease of entry into and exit from a particular market, the availability of information. The ability to influence the formation and level of prices depends on the structure of the market.

Four types of market structures are known, and each of them has a different role. Consider the characteristics of these types of market structures.

1. Market of pure competition

The market of pure competition is characterized by the following features:

In this form, there are a large number of small firms with homogeneous products. Entry and exit from the industry is not difficult, there is equal access to any information. The price is set by the market and the role of the organization in its formation is small. The competitive structure of the market is the most developed, as it is supported by the state. It exists in several forms: functional competition, species and subject competition.

Under perfect competition, an individual firm can only control its output and its costs, but not its price. The main task of the company is to reduce the cost of production. There is no reaction from competitors to a change in the volume of production by the firm. The market price is set by the market, it does not depend on the volume of output of a particular firm. The level of the current market price of a unit of production is formed under the influence of supply and demand in the industry.

The market price in the industry is a benchmark for each individual firm and provides some firms with a positive economic profit (provided that the price is higher than the average total costs), others - a normal profit (provided that the price is equal to the average total costs, while the economic profit is zero) , third - negative economic profit, that is, losses (if the price is below the average total costs). Depending on the relationship between the current market price and costs, each specific firm offers (or does not offer) a certain volume of production to the market. In a perfectly competitive market, when sectoral equilibrium is reached in the long run, the market price of a good with a given production technology tends to the minimum average total cost, and the economic profit of each firm is zero. In conditions of pure competition, the role of pricing strategies, as well as other elements of the marketing mix, is negligible.

2. Pure monopoly market

A pure monopoly market is characterized by the following features:

• - the presence of only one seller of a certain product (the industry consists of one firm);
• - the product has no close substitutes and the buyer must buy the product from the monopolist or refuse it;
• - the absence of both potential and hidden competition;
• - the presence of barriers to entry into the industry, among which are: the existence of an exclusive legal right to engage in this type of activity, the control of a single company over a specific resource used in the production of goods, the economic advantages of large-scale production, the protection of the production of goods by a patent;
• - buyers of goods can be either one, or several, or many;
• - the firm completely controls the volume of supply of goods and very strongly influences - the price, but, changing production volumes and prices, the monopolist must take into account the reaction of consumers.

Note that the market of pure monopoly in its classical sense does not exist in reality. There is always a danger of potential competition of imported goods, there is competition of all goods for the limited budget of consumers.

If one seller is opposed by one buyer, the market structure is called a bilateral monopoly.

Under pure monopoly, price is not a given value. It is determined by the monopolist at the same time as determining the volume of supply of goods, while taking into account costs and demand.

The role of pricing strategies in a pure monopoly is great, although not unlimited. The monopolist deals with aggregate demand and realizes that the more goods he produces, the lower the possible selling price will be, and vice versa. The monopolist is interested in total profit, not profit per unit, so he may engage in price discrimination to maximize profits.

Price discrimination is the setting of different prices for the same product, while the differences in prices are not related to costs. The goal of price discrimination is to use every opportunity to set the maximum price for each unit of goods. Price discrimination can be subject to both the same buyer and different buyers.

For a monopolist to conduct price discrimination, certain conditions are necessary. These include: the ability to control prices and divide the market into segments, the lack of opportunities to move goods with different prices between individual market segments. Only in this case, the demand in each market segment will not depend on the prices that are set in another market. For non-new discrimination, it is important how many buyers oppose the monopolist. If there are few of them, then the monopolist has limited opportunities for price dictate. Conducting price discrimination is associated with significant costs. Bargaining with each buyer individually, studying the solvency of buyers, controlling the staff who personally set prices is an expensive and not always justified business.

Depending on how the above conditions are realized, a monopoly firm can conduct one or another type of price discrimination. If the monopolist has a high degree of control over the market, then he has the ability to set different prices for each unit of goods sold. Such price discrimination is called perfect. In this case, each buyer pays for the product a price equal to the individual demand price. Perfect price discrimination is difficult to achieve, so the monopolist may use other types of discrimination. These include second-degree price discrimination, which in practice manifests itself in the form of various types of price discounts (for example, different prices for different volumes of purchases). Third-degree price discrimination is carried out if there is a possibility of dividing the market (buyers) into segments based on different price elasticity of demand. It is assumed that these categories of buyers can be easily identified (for example, the presence of a student card, pension certificate, etc.). Third-degree price discrimination generally prevails. A monopolist with third-degree discrimination maximizes his total profit by choosing the best combination of prices and sales volumes in each of the segments, while he always sets the price lower in the segment with more elastic demand and higher in the segment with less elastic demand.

Different elasticity of demand is the most important condition for any price discrimination by a monopolist. Thus, the role of pricing strategies in the pure monopoly market is great.

3. Monopolistic competition

Monopolistic competition is characterized by the following features, combining elements of monopoly and competition:

• - the presence of many firms, as a rule, small ones, while large firms, if they are on the market, do not have advantages over small firms;
• - homogeneous goods produced by firms are widely differentiated in quality, service, advertising, which makes each individual firm a mini-monopolist that controls a small share of the entire market of the corresponding product (note that different products mean products: with different consumer properties; seeming for some reason different consumer;
• - sold in different conditions, as well as differently advertised);

entry and exit from the market are free, with the exception of obstacles associated with product differentiation, which creates advantages for the company, protects it from competitors, brings it additional profit, and for the country's market - a variety of goods, however, isolation of the market segment of one and the same the goods are not absolute (the company has to reckon with the competition of goods similar to its own, the demand for differentiable goods is highly elastic - an increase in the price of one of them will immediately lead to switching buyers to another);

Firms concentrate their efforts mainly on the production of goods that are in limited demand and whose properties correspond to the special needs of consumers.

The role of price marketing strategies in the market of monopolistic competition is significant. The firm can, by assessing the solvency of the buyer, bargaining with him, set different prices for his goods and receive a positive economic profit in a short period. By lowering prices, the firm can increase sales volumes. Due to the fact that there are many similar products on the market, and therefore many competitors, the marketing strategies of competitors have an impact on an individual firm, but this influence is weaker than in an oligopolistic market. To the market of monopolistic competition can be attributed, for example, the market of clothing, footwear.

4. Oligopolistic market

The oligopolistic market, which is the most common market in the modern economy, is characterized by the following features:

• - a small number of large firms operate on the market (formally it is considered: four large firms producing more than half of all output), but small firms may also be present;
• - products can be standardized (cement, gas, etc.) and differentiated (automotive industry);
• - Oligopolistic firms have a high degree of control over the market (over production volumes, prices).

If the oligopolist reduces the volume of production, then this will lead to an increase in prices in the market. If several oligopolists begin to pursue a common policy, then their power in the market will approach monopoly. An individual oligopolist, changing prices and production volumes, must take into account the reaction of both consumers and competitors. The oligopolist, reducing prices, is not sure of the long-term result. If the oligopolist raises prices, competitors can keep their prices unchanged. As you can see, the role of price marketing strategies in the oligopolistic market is great. In addition, oligopolists are fighting among themselves for buyers by improving product quality, product differentiation, and advertising.

The number of firms of this structure operating in the market is not numerous and they produce most of the products. Substantial cost savings come from the large size of the firm, which has a significant advantage over smaller firms. Competition in such industries is practically impossible due to high equipment costs and limited market capacity.

The market has its own infrastructure. Market infrastructure is understood as a set of state and commercial enterprises and institutions that ensure the functioning of market relations.

There is an infrastructure of the labor market, commodity and financial markets.

Depending on the social division of labor, the market is local, national and international. According to the type of competition, perfect and imperfect. There are many other classifications as well.

The main elements of the market infrastructure are the trade network, customs and tax systems, banks and exchanges.

The functioning of the market cannot be carried out without advertising, advisory and information services, audit and control institutions.

The market infrastructure leads to facilitating the implementation of barter transactions, legal and economic control over them, increasing their efficiency and effectiveness, and providing information support. Depending on the type and type of market, there is a specific infrastructure configuration.

Competition- This is the struggle of entrepreneurs for the most favorable conditions for the production and sale of goods in order to maximize profits. Competition is a way of allocating society's limited resources efficiently. Competition performs a stimulating function. Through competition, income is distributed in accordance with the contribution and efficiency of the use of factors of production.

Competitive methods:

- price - rivalry by means of price maneuvering (price war, price leadership, price incentives for payment);

- non-price - improving the technical level of product quality, mastering advanced technologies, after-sales service, advertising).

Competition does the following functions:

1) Regulating function- manifests itself in the impact on the production of goods, so that it is carried out in accordance with demand, as well as in the limitation of market power.

2) Innovative function– the need for innovation as a means of increasing economic efficiency.

Depending on the ratio of competition, two types of market are distinguished: perfect and imperfect competition.

Perfect competition - a type of competition carried out between many sellers of homogeneous products with free pricing.

Key features of a perfectly competitive market:

A significant number of sellers and buyers in a particular market;

The volume of production and supply of an individual manufacturer is an insignificant share, so an individual firm cannot influence the price;

Products are homogeneous, standard;

All market participants have the same information about the position of prices in the market;

Firms are free to leave one industry and enter another;

Perfect competition was characteristic of the economies of developed countries in the 19th century, but this phenomenon is now rare. To the greatest extent, such a market can be attributed to the markets of agricultural products, stock exchanges, currency, stock markets (grain market, securities, currency).

Imperfect competition - This is an economic situation in which at least one of the signs of perfect competition is not observed, the firm in conditions of imperfect competition has a certain power over price. It includes the following market models: pure monopoly, monopolistic competition, oligopoly.

A market that lacks at least one sign of perfect competition is called an imperfectly competitive market. In such a market, the vast majority of products are offered by a limited number of firms, which, occupying a dominant position in the market, can influence the conditions for the sale of products and, above all, prices.

There are three main structures (models) of the market of imperfect competition:
- pure monopoly;
- oligopoly;
- monopolistic competition.
Pure monopoly is a market where there is only one seller. Under conditions of pure monopoly, the industry consists of one firm, i.e. the concepts of firm and industry are the same. Entry into the industry for other firms is blocked. Barriers to entry into the industry may include:
- low production costs of a large firm that monopolized the market (scale effect);
- availability of state patents and licenses;
- exclusive rights to the most important sources of raw materials;
- granting by the government to one firm the status of the sole seller (transport services, communications, gas supply).
The condition for the existence of a pure monopoly is the uniqueness of the products offered, the absence of close substitutes. Pure monopoly on the scale of the national economy is a rare phenomenon, but it is quite widely represented in local markets. In almost any city, one seller sells electricity, provides water supply, provides telegraph services, provides transportation, and so on. Due to the fact that a pure monopoly not only restricts, but actually eliminates competition, the state pursues an antimonopoly policy in relation to pure monopolies.
There are various indicators that can be used to measure the strength of market factors (monopoly power): Concentration ratio; Index of four firms; Herfindahl-Hirschman index; Linda index; Lerner index.

One of the methods for defining monopoly power was proposed in 1934 by A. Lerner and was called Lerner's exponent of monopoly power (L). It is calculated according to the formula shown in Figure 1. Here P- price, MC- marginal cost. The numerical value of the Lerner coefficient is always between 0 and 1. For a perfectly competitive firm P=MS and L=0. The more L the more monopoly power.

HHI = S 2 1 + S 2 2 + S 2 3 +… + S 2 n

Another method for assessing the degree of monopoly power is associated with the use of the “market concentration index”, named after its authors. "Herfindahl-Hirschman index" . Herfindahl–Hirschman index HHI is defined as the sum of the squares of the shares of all firms in the market, where S1- the market share of the company providing the largest volume of deliveries, S2 is the market share of the next largest firm

Oligopoly(from the Greek oligo - few and poleo - sell) is a market dominated by a few large firms. (For example, in the US there are 9 firms selling chewing gum, which account for 95% of annual sales.) There is no clear quantitative criterion for oligopoly in terms of the number of firms, but usually it ranges from three to ten. An oligopoly consisting of 3-4 firms is called "hard"; consisting of 4-9 firms, which account for 70-80% of the market, is called "amorphous". An oligopoly can exist in the market for standardized products (oil, cement) or in the market for differentiated products (cars, household appliances).
There are balanced oligopoly (several firms of the same size) and asymmetric (one seller-leader and a number of small sellers).
Firms operating in an oligopolistic market earn high profits because, as in the case of a pure monopoly, it is difficult for outsider firms to enter the industry. A characteristic feature of the oligopolistic market is the interdependence of firms - any of the oligopolists is significantly influenced by the behavior of other firms and is forced to take into account this dependence.

The performance of an oligopolistic firm depends not only on its own policies, but also on the decisions of its competitors. If one firm (Coca-Cola) lowers the price of its products, then another firm operating in the industry (Pepsi-Cola) will also be forced to lower the price of its products. Price competition among oligopolists is ruinous, so firms tend to agree on prices, shifting competition in the direction of quality, advertising, product individualization.
Monopolistic competition. In this type of market, there are many sellers selling similar but differentiated products (eg jeans, toothpaste) over which the seller behaves like a monopolist. Sellers independently determine the price of their goods, sales volumes. But since there are many sellers of similar products and the volume of sales by an individual firm is relatively small, the firm's control over prices is limited. The main methods of competition are trademarks, advertising, highlighting the differences in goods. Entry into the market of monopolistic competition is relatively free.
Externally, monopolistic competition is similar to perfect competition, but the presence of although limited, but monopoly power leads to the fact that production is carried out at higher costs than in conditions of perfect competition. However, a wide choice of brands, types, styles, quality of products can better meet the diverse needs of customers, thereby compensating society for the loss from higher production costs.

Market- a set of relations between sellers and buyers exchanging products of specialized activities.

Buyer's point of view The market consists of firms that offer it the necessary goods and services. From the point of view of firms A market is a set of buyers to whom a firm can sell goods and services. A group of firms that produce either the same product or related products of the same type is called industry. Let's single out a separate firm in the industry. If this firm had information about the demand for its product, and could determine how much of its output of goods and services will be purchased at each price, it would know exactly what price to charge for any volume of sales. In this case, she could easily calculate her revenue and, knowing the costs of production, find the value of Q that provides her with maximum profit.

However, in practice, an individual firm usually faces a market demand, a demand curve for a product produced by the entire industry. In this case, the firm is no longer able to determine how the sales volume of its product will change depending on the price that it sets for its product. To do this, the firm needs to know how other firms in the industry will react to changes in the price of its product. Ultimately, it is this reaction that will determine the sales volume, revenue and profit of the firm.

The response of firms in an industry to certain actions of an individual firm is determined by the market structure in which firms operate. Under market structure its characteristics are understood from the point of view of the impact both of the market on the position and behavior of individual commodity producers, and of individual enterprises on the state of the market. The concept of market structure reflects all aspects of the market - the number of firms in the industry, the type of product produced, the opportunities for other firms to enter and exit the industry, the number of buyers, the ability of firms to influence demand through advertising, and other aspects that can influence the behavior of firms. Knowledge of the market structure is necessary in order to determine the possible sales volumes at different price levels, and how competing firms will behave under the influence of the steps taken. We can say that the structure of the market determines the degree of its competitiveness. Market Competitiveness- the ability of an individual firm to influence the market of goods, primarily to change the price of the goods produced. The lower the ability of each firm in the industry to influence the market of the goods they sell, the more competitive the market is considered.

Since many factors influence the market structure, theoretically there can be a large number of market structures. However, many economists find it possible to simplify the analysis by assuming that The market structure is determined by four main factors:

the number and size of firms in the industry;

whether firms in the industry produce the same type or heterogeneous goods (the degree of similarity or difference of goods);

· how difficult it is for other firms to enter the industry (ease of entering and exiting a particular market);

Availability of market information.

Considering these factors, There are four theoretically possible market structures:

perfect (pure) competition;

monopoly (pure);

monopolistic competition;

oligopoly.

Monopoly, oligopoly and monopolistic competition refer to imperfect competition.

So, There are 4 types of market structures in total.

Consider their features.

Pure competition is characterized:

many small firms

homogeneity of products

Equal access to all types of information

Monopoly is characterized by:

one firm

the uniqueness of the product

Almost insurmountable barriers to entry

Variety of types of monopolies: closed monopoly; natural monopoly; open monopoly; monopoly protected by legal prohibitions on competition, etc.

Monopolistic competition is characterized by:

many small firms

product heterogeneity

lack of difficulties in entering and exiting (from the industry)

somewhat limited access to information

Oligopoly is characterized by:

a small number of large firms

Heterogeneity (or uniformity) of products

possible difficulties in exiting (from the industry)

somewhat limited access to information

Let's give the concept of competition.

Competition(from lat. "Concurrere"- collide) - the struggle of independent economic entities for limited economic resources. It is an economic process of interaction, interconnection and struggle between enterprises operating in the market in order to provide the best opportunities for marketing their products, satisfying the diverse needs of buyers. This is both a way of managing, and such a way of existence of capital, when one capital competes with another capital. Competition is seen as the main essential feature, property of commodity production, as well as a method of development. In addition, competition acts as a spontaneous regulator of social production. The consequence of competition is, on the one hand, the aggravation of production and market relations, and on the other hand, an increase in the efficiency of economic activity, the acceleration of scientific and technological progress.

Competition- competition in the market between producers of goods and services for market share, maximizing profits or achieving other specific goals. In addition to competition between producers (sellers), there is also competition between consumers (buyers) of goods and services. Buyers compete for the seller if less goods are delivered to the market than they are willing to purchase at prevailing prices.

Competition- competitiveness of economic entities, when their independent actions effectively limit the ability of each of them to unilaterally influence the general conditions for the circulation of goods in the relevant commodity market.

6.2. The theory of perfect competition: concept and main features, features of demand in competitive markets

So there are two types of competition: perfect and imperfect. Their classification is based on the degree of influence of an individual seller (or buyer) on the market structure.

A perfectly competitive market A market that satisfies the conditions of perfect competition.

A perfectly competitive market has the following characteristics:

A large number of firms operate in this market, each of which is independent of the behavior of other firms and makes any decision independently. The market is characterized by a high level of organization, efficiency and informativeness - the industry firms are aware of all the events taking place in the market.

Any firm in the industry is not able to influence the market price of the goods produced by the industry. 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.

Under conditions of perfect competition, any firm in the industry perceives the market price as an external (exogenous) factor that does not depend on its actions.

Firms in an industry produce the same standard product, so it makes no difference to buyers which firm's product to purchase.

An industry is open to entry and exit by any number of firms. No firm in the industry is undertaking any opposition, as there are no legal restrictions on this process. In other words, it is easy for new firms to enter the market, restrictive advantages are impossible, since goods and prices are the same.

An important role is played by the reliable reputation of the company. The seller in these markets does not spend much time developing a marketing strategy, because as long as the market remains a market of pure competition, the role of market research, product development activities, price policy, advertising, sales promotion and other activities is minimal.

Perfect competition prevails when the demand for each producer's product is perfectly elastic. It follows, firstly, that the number of sellers is large and the volume of production of any of them is a negligible fraction of the total output of a given product; secondly, that all buyers are in the same position with regard to the ability to choose between competing sellers, so that perfect competition prevails.

The theory of perfect competition- this is a model of a certain anti-competitive state of the market, in which the enterprise is completely isolated from the market pressure of rivals. For a real-life firm, the absence of market pressure is equivalent to the absence of incentives to improve the efficiency of its activities. In the real economy, intense competition between firms often leads to an increase in the concentration of production and capital.

The individual demand curve of a firm in a competitive environment is horizontal, which indicates the absolute elasticity of demand for manufactured products. This should be understood in the sense that, within the framework of a possible expansion of production, the firm does not influence the price of the goods produced. The market demand curve for this product of the firm will have the usual downward slope, because. consumers will buy more goods at a lower price (Fig. 6.1).

A) the firm's individual demand curve

B) the market demand curve for the products of firms that produce the same name, homogeneous goods, i.e. industries.

Figure 6.1. Graphical Expression of Demand of a Competitive Firm

When planning its activities, an individual firm must foresee the behavior, the reaction of other firms in the industry to its actions, for example, price changes. In other words, each firm needs to study the structure of the market.

The theory of a perfect competitive market is applicable to individual real-life industries. At the same time, the study of the behavior of a firm in conditions of perfect competition assumes:

1) that the volumes of its production are insignificant, in comparison with the whole industry, and can change without affecting prices;

2) that any other firm can easily enter the industry and exit it by stopping the production of a certain product.

It follows from the first assumption that the demand curve of an individual firm is horizontal, i.e. the demand for its products is perfectly elastic (Figure 6.1-A). However, perfect elasticity here must be understood not in the sense that the firm can sell any quantity of the product, but in the sense that, within the framework of a possible expansion of production, the firm will not affect the price of the product. For such a firm, the demand curve, the average revenue curve, and the marginal revenue curve will be the same. They represent the same horizontal line drawn at the level of the price of the goods being sold (Figure 6.6). If in conditions of perfect competition the price is equal to the marginal revenue, then for a firm maximizing its profit (based on the universal rule MR=MC), the price must be equal to the marginal cost: P=MR=MC.

Before proceeding to the analysis of the behavior of the company in constantly changing market conditions, it is necessary to find out what constitutes the total (gross) income, or firm revenue (TR), marginal income (MR) and average income (AR).

Under the total revenue (or gross income TR) of the firm means the amount received from the sale of all produced units of goods at the market price:

TR = P*Q,

Similar information.

Under the market structure, it is customary to understand the totality of many specific features and traits that reflect the characteristics of the organization and functioning of a particular industry market. The concept of market structure reflects all aspects of the market environment in which the company operates - this is the number of firms in the industry, the number of buyers in the market, the characteristics of the industry product, the ratio of price and non-price competition, the market power of an individual buyer or seller, etc. Theoretically, market structures can be large. Nevertheless, many economists consider it possible to simplify the analysis by resorting to a typology of market structures based on several basic parameters - signs of an industry market.

1. Number of firms in the industry. The presence or absence of an individual firm's ability to influence the market equilibrium will depend on the number of sellers operating in a given industry market. Ceteris paribus, with a large number of firms in a given market, any attempt by an individual firm to influence market supply by reducing or increasing individual supply will not lead to any significant change in the market equilibrium. In this case, the market share of each particular firm is insignificant. A different situation will arise when the market share of the firm is large, i.e., one or more large firms operate in this market. Such a firm has the opportunity to influence the market supply, and hence the market equilibrium and market price.

2. Control over the market price. The degree of control of an individual firm over price is the most striking indicator of the level of development of competitive relations in the industry market. The greater the individual producer's control over price, the less competitive the market is.

3. The nature of the products sold on the market- A standardized or differentiable product is produced by an industry. Product differentiation means that in a given market different firms offer products designed to satisfy the same need, but differ in different parameters. There is such a dependence here: the higher the degree of differentiation (heterogeneity) of industry products, the more the company has the opportunity to influence the price of its goods and the lower the degree of competition in the industry. The more standardized (homogeneous) an industry product is, the more competitive the market is.

4. Conditions for entering the industry, which is associated with the presence or absence of barriers to entry into the industry. The presence of such barriers will prevent the entry of new firms into a given industry market and, consequently, the development of industry competition.

5. Presence of non-price competition. Non-price competition takes place if the industry product is differentiable. Non-price competition - competition in terms of Quality of products, services, location and availability, and advertising.

Depending on the content of each feature and their combination, different types of industry markets (different market models) are formed - perfect competition, monopolistic competition, oligopoly and pure monopoly.

Based on the presented characteristics, it is possible to give definitions of various types of market structures:

perfect competition- a model of the market, which is characterized by price competition between manufacturers of standardized products that are not able to influence the market equilibrium and the market price. A market structure that does not meet at least one of the conditions of perfect competition is an imperfectly competitive market. Markets of imperfect competition, in turn, are represented by markets of pure monopoly, monopolistic competition, oligopolistic markets;

pure monopoly- a type of market structure characterized by a lack of competition, which implies dominance in the market closed by entry barriers of one firm that produces a unique product and controls the price;

monopolistic competition- a type of market structure in which sellers of differentiated products compete with each other for sales volumes, and non-price competition acts as the main reserve for achieving a competitive advantage in the market;

oligopoly- a type of market structure in which several interdependent and often interacting firms compete with each other for market share (sales volumes).

Each of these market structures is distinguished by a different degree of market power of an individual producer, which is inversely related to the degree of development of competitive relations in the market. market power- the ability of a producer or consumer to influence the situation on the market, primarily on the market price. If market power is manifested on the demand side, then we should talk about the market power of the buyer. Bargaining power of the producer It consists in the presence or absence of the opportunity for him to influence the industry (market) price of manufactured products by changing output volumes. The market power of an individual seller will be determined by the peculiarities of the organization of the market structure and will depend on the following factors:

Shares of the given firm in the industry-wide offer. The greater the share of a given firm in the market supply, the more opportunities it has, by changing its own offer, to influence the industry-wide (market) supply, and hence the market price;

Degrees of price elasticity of demand for the firm's products. The less elastic demand is, the less the company fears a negative reaction from consumers of its products, the more opportunities it has for price maneuver, the higher its market power;

The presence of substitutes for a given product, since the more substitutes a product has, the higher the degree of price elasticity of demand. A high elasticity will limit the bargaining power of a given firm;

Features of the interaction of firms operating in the industry, which can cause the emergence of market power among manufacturers operating in the industry. This situation is possible if firms can collude and reach an agreement on the division of the market and on the market price.

The main sources of market power have been identified above. The specific conditions for the functioning of firms under perfect competition, pure monopoly, monopolistic competition and oligopoly are characterized by a different ratio of these factors, which, in turn, gives rise to the absence or presence of market power, as well as the degree of influence of an individual producer on the market situation.

Note. The market power of an individual producer in an industry lies in the ability to influence the market price of a product (P x ). Suppose that a certain firm has market power (is a monopoly) and can influence the industry price. It turns out that this firm will not be able to arbitrarily set the price P X . As you know, the price is set as a result of the interaction of market demand and supply. By reducing or expanding its individual supply, a firm with market power can influence industry supply, but not industry demand. Market demand will be determined by the operation of the law of demand and is functionally independent of the behavior of the firm, even if it has market power. Thus, the ability of an individual firm to influence the industry price will be limited by market demand. A firm with market power is limited in choosing a price for its products and the following circumstance. In an effort to maximize profits, the firm is forced to choose the appropriate volume of production for each price level, looking for a combination of "price-output volume" that provides it with profit maximization.

The degree of market power can be quantified. For this, the so-called Lerner coefficient is used, which is defined as the ratio of the excess of the firm's price over its marginal cost to the price of the goods: L = (P X -MC ) / PX

The values ​​of the coefficient are calculated in absolute terms, and O< L < 1. В условиях совершенной кон­куренции, когда ни одна из действующих на рынке фирм не обладает рыночной властью, L = 0. В условиях чистой монопо­лии, когда на рынке действует единственный производитель, обладающий фактически абсолютной рыночной властью, L= 1.