Competition is the rivalry between participants in the market economy. Types and functions of competition


2020-07-02 23:37:21




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Competition – a concept inherent in a market economy. Every participant in the financial and commercial relations, seeks to take the best place in the environment where it must operate. For this reason, there is stiff competition. The struggle between the subjects of market relations can be conducted according to different rules. This determines the form of competition. About the features of this competition will be discussed in the article.

General definition

Competition – is a rivalry between the participants of market relations, which is a necessary tool on the path to progress and development. This is one of the most important economic categories. The term is translated from the Latin “contest” or “collision”.

competition in the economy

There are three main views on the interpretation of this notion. From the perspective of behavioral theory, competition is a struggle of interdependent sellers. They seek to gain control over the entire market in a particular industry. Neoclassicism somewhat clarified the definition. The adherents of this movement considered the competition as a struggle of mutually dependent sellers for mastering the limited economic benefits, consumer, money.

The Structural theory looks at competition from the point of view of the ability or inability of players to influence the price level. On the basis of such judgments produced several models of the market. Proponents of this theory distinguish between rivalry and competition.

The Third interpretation competition gives functional theory. According to this view, the struggle is between the old and the new. Entrepreneurs simultaneously destroy and create.

If we consider the concept in its most General form, the competition – is an economic category. It expresses the communication and interaction of economic entities on the market which are fighting for the possession of limited resources, benefits. In the end, all the traders trying to occupy a privileged position in a particular activity. This ensures the survival of entrepreneurs on the market.



Competition in the economy is seen as the driving force of progress and development, improve the technical characteristics of the product. This element is required and harmoniously functioning system. The economy as a result of this rivalry produces only those products that currently needs a buyer. Manufacturers are looking for the most efficient technologies, invest in new research and development in order to improve your product, make it the required level of quality.

Feature competition

There are several basic functions of the competition. The first of them is regulation. To occupy the best positions in the industry, the manufacturer produces the products, which, in his opinion, on the basis of the conducted research will be in demand. Therefore, develop only promising, important segments of the market.

Another function of the competition is motivation. This is a chance and a risk for the manufacturer of products simultaneously. To get a high profit, the company must produce quality products at minimum production costs. If he violated the wishes of customers, it loses money. Customers will choose another product. It motivates entrepreneurs to produce quality products, which will be implemented at an acceptable cost.

Competition also performs the control function. It limits, establishes a framework for the economic development of each company. This doesn't allow one company to control the market price at its discretion. The seller will be able to choose products that are produced by several companies. The more perfect the market competition, the fairer will be the pricing.

Competition Policy

Studying the concept of competition, you need to understand not only the basic ways of its impact on the market, but also the mechanism for managing relationships between all participants. For this, the government is pursuing a balanced policy which has multiple goals. First is the promotion of technological progress. The state motivates the manufacturers to make products using innovative technologies.

competing manufacturers

The Concept of competition should be seen as a struggle at a specific point in time. Manufacturers need to respond quickly to all changes that occur in their environment. Therefore, the policy of the state aimed at the dissemination of market information, its availability. All the players have to respond quickly to production breakthrough, innovation of one of the participants of market relations. This allows you to develop specific industry faster.

The State is not interested in the development of a monopoly in the market. In this case, development becomes limited, inharmonious. Because is competition policy, subsidy, incentives for development of small and medium-sized businesses. A major player, which is a monopoly, is subject to the laws established at the legislative level.

There isthe probability that the major players in a particular industry will agree, on risk aversion, mandatory conditions for the existence of competition. In this case, the development will also be inharmonious. Will suffer from it customers and development, quality improvements and innovations are not characteristic of such a system. Therefore, the state has a policy to prevent collusion between the companies on prices. Published regulations that set the rules of competition for a particular industry.

Guarantee competition policy

The Legislation of each country establishes rules of competition. The regulatory framework adapts to the conditions prevailing within each particular state. This allows you to manage development, to create conditions for the harmonious growth of individual industries and the national economy as a whole.

non-Price competition

In the Russian Federation the main normative act which regulates the relations of all market participants is the law “On protection of competition”, which was adopted 26.07.2006, This document promotes the establishment of quality competition in the domestic market, protect the rights and define responsibilities of all participants in trade relations.

Law “On protection of competition” allows you to create conditions that enable different companies, regardless of size, to carry out their activities. They can easily enter the market, to occupy the vacant niche.

The Law stipulates that the focus of competition should be price and quality of products that comes to market. Each service offered by traders should be proportionate to the actual cost and other terms and conditions established in the domestic market of the country.

The law protects the rights of trademarks, brands products. This allows the buyer to obtain quick access to information about the origin of a product. Based on these data consumers can judge the quality of the products, their technical characteristics.

The Impact of competition on the development of the national economy and society is difficult to overestimate. Therefore, the state policy shall establish appropriate conditions for the proper development of each industry. Is limited patent protection, registration of industrial designs. Patents are provided by the rock up to 20 years.


There are different types of competition. Their klassificeret-based perspective with which to consider relations between all participants of the trading process. The effects that competition has on the economy as a whole, distinguish constructive and destructive rivalry manufacturers. In economic theory mainly considered this creative competition.

Impact of competition

There are types of competition on structure of participants involved in the rivalry.

  • Intra-industry competition. Participants are enterprises of the same industry. This enables to make the cost of production.
  • Inter-branch competition. The struggle is between entities of different industries. This competition allows you to set average profit.

Competition may be different methods of struggle. Distinguish price and non-price rivalry. In the first case company to attract customers, control the cost of the product (usually reduced, but sometimes up). With the deepening of producers in such methods of struggle may arise between them in a real war. This kind of competition is destructive.

Non-Price competition allows participants to gain a privileged position on the market thanks to the production of a unique product. It differs in appearance or inner content. It also can be service, additional services offered by the manufacturer to the buyer, and advertising.

Perfect (pure) competition

Depending on how producers affect the pricing in the market, highlight the imperfect and perfect competition. In the second case the industry is established a situation in which no company can affect the overall cost of production. It is formed exclusively by the laws of supply, demand and real cost.

competition Form

Unlike perfect competition, imperfect competition is unfair. Some manufacturers are using their dominance in the market, begin to dictate their own conditions when setting prices. This effect may be significant or small. This limits the freedom of entrepreneurial activity, establishes a framework and limits for the other players.

Imperfect competition

To imperfect competition are such forms of existence of the market as oligopoly, monopoly, monopolistic competition, monopsony, oligopsony and other similar varieties. The more power concentrated in the hands of one manufacturer, the more monopoly in this industry.

That was the place to be perfect competition in the market requires the presence of a large number of small players. In this casethe share of each participant in the market should not exceed 1 %. All products offered by the producers must be uniform and standard. Also the condition of perfect competition is the presence of multiple buyers, each of which may acquire a small amount of product. All traders have access to information about the average price in the industry. To enter on the market does not set barriers and limitations.

Monopolistic competition

Perfect or pure competition is now seen as the abstraction that allows us to understand the mechanisms of the market. However, in developed countries, in most cases set monopolistic competition. It is quite normal. It is controlled by the state.

Types of competition

Examining the forms of competition, it is monopoly against many manufacturers need to pay attention to. On the market there are many buyers and sellers. Transactions in this case are wide ranging. They may be significantly different from the established average. This is due to the ability of firms to offer products of different quality. However, such differences should not be significant. Most often it is the methods of non-price competition. However, for the difference buyers are willing to pay more. All market participants have a low ability to set prices because a lot of them.

This competition may occur in industries characterized by complex technologies (e.g., mechanical engineering, energy, communications, etc.). So the company can develop new product, which has no analogues. He gets the profits, but later on the market there are a few players who were able to develop such innovation. They receive roughly equal opportunities. It does not allow individual companies to dictate the price of the goods.


There are forms of competition in which the number of players on the market is limited. This oligopoly. The participants can not significantly affect the pricing. If one of the players will reduce the cost of their goods, the rest of the participants will either have to discount your product, or offer a greater volume of additional services.

In such a market, participants can not rely on priority long position at lower prices. To enter this market difficult. There are significant barriers that prevent firms here are small, medium-sized businesses. Often, an oligopoly is established on the trade market, steel, natural, mineral resources, computer equipment, machinery, etc.

In such a market can be established unfair competition. As market participants are few, they can negotiate between themselves and unreasonably increase prices on the goods. Such actions are controlled by the state. Unfair competition leads to devastating for the economy consequences. It contributes to the development, scientific progress. Collusion leads to the establishment of unfair prices. The demand for products falls.


Competition in the economy can take different forms. Sometimes the market is set a pure monopoly. In this case, most of the production supplies only one company. The entrance to the market for other players is not only limited, but practically impossible.

The Monopolist, whose activity is not controlled by the state, can set prices to influence their formation. It should be noted that the monopolist rarely sets the highest possible value. Most often it is due to the reluctance of the company to attract other firms. Also setting low prices monopoly can pursue the goal to completely conquer the market. Even small firms will be forced out.

Having Considered the variety and peculiarities of the formation of trading relationships in the market, we can say that the competition – it is the force that determines the development of the industry. In establishing harmonious relations between all participants to achieve development of the entire economy. Improper distribution of influence of enterprises, competition can be destructive.

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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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