Production cost in a competitive environment

The concept of "competition" is one of the main parameters of the market mechanism, through which the demand, supply and production cost of goods are regulated. It is competition that predetermines the competitiveness of enterprises and goods. Competition is a specific form of relations between business entities. This economic rivalry of autonomous producers of marketable products for a certain segment of the market and, in the final analysis, is the basis for the competitiveness of the goods themselves.

The competition, first of all, fulfills the function of affirming the sovereignty of consumers. In this regard, it requires constant adaptation of production to the characteristics of market conditions, encourages commodity producers to actively pursue entrepreneurial activities. From an economic point of view, competition means rivalry between commercial entities for obtaining the most favorable conditions for the production of goods and selling the goods, obtaining the most profitable orders in order to consolidate positions in the market and maximize profits.

Realizing the stimulating function to achieve entrepreneurial success, competition involuntarily generates an economic need to improve the organization of production, which will change the composition of the production cost in the direction of increasing the share of competitive properties of the goods. If this does not happen, the commodity producer is forced out of the market just as an object with a lower than its specific gravity is pushed out when immersed in water. Competition gives intensive reproduction such important features as innovation and investment activity, the desire for product differentiation and production diversification under the influence of demand dynamics and constant analysis of the actual production cost of the output produced at the enterprise.

Along with the approval of the sovereignty of consumers, the adaptation of production and its stimulation, the most important functions of competition are ensuring economic independence, self-regulation and differentiation of commodity producers. The competition mobilizes hidden reserves of enterprise growth, contributes to the optimal combination and effective use of factors of production, rational redistribution of its resources and revenues, helps to ensure that the production cost of the enterprise is constantly reduced. Performing the function of distribution, competition creates the conditions under which the distribution of income and production activity is carried out depending on the effectiveness of the factors of production. Such a distribution is the basis for stimulating the economic dynamism of production and thus ensures the necessary supply of it on the market and the receipt of an appropriate income.

The production cost, the terms of supply of products, the parameters of social and economic responsibility of entrepreneurs for its production are also largely determined by competition. The peculiarity of competition is manifested in the fact that it constantly "trains" the entrepreneur, although its results are unpredictable. Due to the fact that competition is risky, it forces us to calculate alternative business options.

As an incentive for accelerating NTP and producing competitive goods, competition can be analyzed both in price and non-price aspects.

Price competition, as a rule, implies a policy of dumping - selling goods at lower prices than competitors. Such a policy does not practically define such an important parameter as the production cost and is effective only for a limited time.

Non-price competition, on the contrary, is mainly based on the development, production and supply of goods of higher quality. And although this requires additional investments in the modernization of production, ultimately such a policy is more effective for the enterprise in terms of its competitiveness.