Functions of competition in a market economy. Competition and its role in a market economy

The role of competition in a market economy is difficult to overestimate. Thanks to this process, the development of this or that branch is taking place, manufacturers improve the quality of their products in order to attract the maximum number of buyers. On consumers, competition also has a positive impact. But with all the advantages of this process there are drawbacks. Competition forces weak start-up companies to leave the market, while strong ones, on the contrary, only strengthen their positions. In addition, there is instability. The functions of competition in a market economy are designed to improve the process, and the shortcomings become less.

What is competition?

The economic rivalry of commodity producers for attracting the largest number of buyers, respectively, obtaining maximum profit is called competition. The founder of economic science, Adam Smith, called competition "the invisible hand" of the market. He said that thanks to this process, the aspiration of producers to the maximum income serves also for the benefit of society, as the commodity becomes more qualitative.

Like many other terms, competition can be considered in both a broad and a narrow sense. In a broader sense, competition is understood as part of the market mechanism that regulates and ensures interaction between economic actors. In a narrow sense, this process is presented as a rivalry between individual companies for "a place in the sun", a competition of firms in any industry. The functions of competition in a market economy determine the order of actions and goals that must be met.

Perfect competition

Speaking more broadly, we can distinguish two main types of competition: perfect and imperfect. Perfect competition is not divided into models, which can not be said about imperfections. At first glance, it is perfect competition that is the ideal situation in the market conditions. The essence of it is that all manufacturers produce the same product that meets certain requirements. To attract buyers the manufacturer can only with the help of advertising moves, but you can not change the product itself. In reality, this kind of competition is very difficult to find. As an example, it can be said that farms of farmers who grow the same vegetables and fruits.

Monopoly

This direction is most widely represented in the world at the moment. Monopoly is one of the models of imperfect competition. It is an abundance of small firms that produce goods and offer their services. The essence and functions of competition in a market economy are most widely represented precisely in this form of this process. After all, in a monopoly you can compete in almost all ways: change the price, product quality, place advertising, create a new brand, etc.

There are many examples of such competition: it can be travel companies, beauty salons, and bookmakers. In every city there are various organizations that provide services or produce goods. These enterprises are representatives of the monopoly.

Oligopoly

This market has one distinctive feature: it should not simultaneously function more than ten manufacturers. The functions of competition in a market economy are doomed to two outcomes: either they help companies to agree on partnership, or firms begin to outlive and displace each other.

The state in the conditions of the oligopoly monitors the price level, so that producers are not insolent or set high prices for goods, which are much cheaper. All companies that operate in this market are large and successful. It is almost impossible for new enterprises to take their place next to them. Examples include mobile operators and the chemical industry.

Pure monopoly

This market differs from others in that there is only one manufacturer. The functions and place of competition in a market economy in this case do not mean anything. If the manufacturer is only one, then he has no one to compete with, because he is a monopolist in this or that industry. The state should monitor, since the monopoly firm can practically establish its own rules. In most cases, with pure monopoly, there is no development of production. Often years the same product is produced, which is not improved. This leads to stagnation in the economy. Of the examples can be identified water utilities and gas companies.

Functions of competition

To begin with, it is necessary to outline the general functions of competition in a market economy briefly. Then all this will be disassembled in more detail. So, first, this process must ensure the effective use of factors of production. In other words, it should help to adapt modern production to new conditions. Secondly, competition should help to ensure that the main goal of any entrepreneur - getting the maximum profit - is combined with the development of technical progress. Third, competition provides freedom of action. It offers an alternative for absolutely any activity.

Regulating function

Now about each in more detail. Let's try to consider all the functions of competition in a market economy with examples. At the heart of the market is the equilibrium of supply and demand. The regulatory function helps to identify the volume of production that will satisfy the needs of the buyer.

To determine this, you need to draw a graph that will reflect the demand and quantity of products. On the chart there is an equilibrium point that reflects the right amount of goods. For example, the company is engaged in dairy products. On the day she produces 50 packs of milk and 20 cans of sour cream. If the enterprise starts to produce 10 packs of milk less, there will be a deficit. And if 10 more, then there will be a surplus. Both have a negative effect on production, so this function is very important.

Innovations

No less important in the modern world is the innovative function. At present, everything is changing very quickly, and the improvement of production, the acquisition of new equipment becomes a necessity. However, not all firms are willing to spend huge amounts of money on various innovations. Although thanks to them, working conditions improve, the quality of products improves. The experience of other companies shows that it is necessary to apply all the functions of competition to a market economy. Examples can be varied, but we will dwell on one of them.

At the end of the 20th century, Nucor Steel, which was engaged in casting steel, was no different from its competitors. In 1986, the president of the company was able to obtain documents on the new technology. This development was incomplete, and its implementation required a huge amount of money that the company did not have. However, the president took a risk, and now Nucor Steel is an industrial giant that outperformed all competitors and became the leader in this industry.

Distributing function

Like all other functions of competition in a market economy, the distributing is very important. In other words, this is motivation. According to statistics, half of the firms cease to exist a year after the appearance. 65% leave within three years. This indicates a lack of knowledge and a small level of motivation. The company, which aims to win customers, will do everything possible for this. This firm will apply in its activities all the functions of competition in a market economy. The plan also plays an important role. Planning your activities is necessary, as it helps to clearly identify all stages of the company's development, and also determines the mission and purpose of the enterprise.

Monitoring function

Control in a competitive environment should exist in the form of any bodies. In the markets of monopolies and oligopolies there is such a body - the Antimonopoly Committee. In the conditions of a pure monopoly, the controlling body is not, as it is not necessary. Many economists do not distinguish the control function, since no producer will put a price above others for a low-quality product, as this will lead to loss of customers and, consequently, bankruptcy of the enterprise. It is necessary to work on mistakes and improve the goods in order to break out into leaders among similar firms.

Conclusion

Having considered all the functions of competition in a market economy, it can be concluded that all of them are extremely important, and without them no enterprise can exist. The examples cited fully reflect the significance of each function. Every company needs to work on errors, but not necessarily over their own. The experience of other firms is priceless, and before making any important decision it is necessary to find out whether there have been such cases in history and how they ended.

Now there is a World Wide Web, which is in the public domain, so it's very easy to do this. Also, one should not forget about the literature that will help a beginning entrepreneur to apply all the functions of competition in a market economy. The book by A. S. Eliseev "Economics", among other things, is an excellent beginning for studying the principles of economics.