Perfect and imperfect competition: essence, characteristics, basic models

Perfect and imperfect competition, their forms, models, distinctive features have been stirring the minds of the world's leading economists for several centuries.

Competition, as is known, is the most important sign of a market economy. It is a process of interaction between sellers and buyers, in which the latter have unlimited freedom of choice, and each of the sellers must prove to him that it is his option that is most acceptable.

Competition has long attracted a variety of academic economists, but if previously no one doubted its ability to regulate the market, then in recent decades, the voices are sounding louder than ever, that one should distinguish between such concepts as perfect and imperfect competition.

The thing is that for a long time the apologists of the so-called free market argued that it was he who could solve all the economic problems of a particular society, determine the vector of the development of the state. The core sign of such an economic model, they saw pure competition, in which as many companies and individuals would be engaged in the production of a particular product, and the contribution of each of them to the total production would be so insignificant that none of them could independently To exert a decisive influence on the formation of prices.

In addition to the above, the characteristic of the perfect competition market was the absence of any serious costs for advertising and promotion of the goods to other markets. All the competition between producers was to be conducted exclusively at the level of price and quality of the goods. Any company at any time had the opportunity to leave the market without any consequences for itself.

However, history has shown that the pure market turned out to be an illusion rather than a reality. Conversations that perfect and imperfect competition are equally inherent in any market, and the predominance of one form or another depends on the level of economic development of society, were nothing more than good wishes. Imperfect competition, as it turned out, played a more significant role in the life of mankind.

Currently, the following models of imperfect competition are known:

1. Competition between large monopoly firms. This model is typical for the global economic space, when a sector was divided between large companies, each of which has all the possibilities to become a sole seller in a single country. It is this model that is best suited for understanding the dilemma of "perfect and imperfect competition". At the same time, if we take the whole world market as a whole, then here no producer has the decisive levers that could influence pricing. A typical example is the market of sportswear and equipment.

2. Oligopoly. This model assumes that the market for certain goods or services is divided among a small number of large companies that are likely to be colluding with each other. As for prices in the conditions of oligopoly, the companies agree on system-forming concepts, while the cost of non-core goods may vary. An example is the market for the production of non-ferrous metals.

3. Pure monopoly, when in this market there is one player, which determines the price, quality, and the nomenclature of goods and services. No other companies in this economic space are allowed, advertisement to the manufacturer is almost unnecessary. An example is OAO Gazprom.