Examples of a perfectly competitive market. Signs of perfect competition

MARKET OF PERFECT COMPETITION

Each sector of the economy can act in a specific market structure. It characterizes the conditions in which competition occurs. These conditions can be free, when none of the market participants can influence its conditions, or non-free.

In the latter case, some enterprises control a large share (part) of the market for the production and sale of a certain product and therefore can dictate their terms to it. In accordance with this, they distinguish two types of markets: perfect and imperfect competition.

Perfect competition occurs in a market where none of the participants can influence the market price and the volume of supply and demand.

Competition among producers in a given market (on the supply side) is called polypoly, which means “many sellers”, and competition between buyers (on the demand side) - polypsony, that is, “many buyers.”

A perfectly competitive market is characterized by the following main features:

- unlimited number of independent sellers and buyers goods in a competitive industry (several hundreds or thousands), with each seller having a limited market share;

- absolute product homogeneity means that the goods offered for sale have the same standard properties with regard to quality, packaging and appearance;

- absolutely free access to the market new enterprises and free exit of existing companies;

- absolute mobility, that is, freedom of movement of all factors of production, the ability to get rid of excess resources or attract additional factors;

- complete overview (transparency) of the market means that sellers and buyers are informed about prices, quality of goods, volumes of demand and supply, that is, they make decisions under conditions of certainty;

- the conditions of competition are the same for all market participants, competition must not be allowed to create advantages for someone arising from friendship or differences in the delivery time of goods.

In a perfect market, sellers and buyers meet not only in the same place, but also at the same time, so that each of them can react without delay to all changes in the market. A striking example of such a market is the commodity, currency and stock exchanges. The price of a specific product in a market of perfect structure is set depending on supply and demand. Each individual seller and buyer cannot directly influence it.

For example, if the seller asks for a high price, all buyers will go to his competitors, but if the seller asks for a lower price, then the main demand will be focused on him, which he is not able to satisfy due to his insignificant market share. Therefore, the seller adapts to the market by adjusting the volume of sales. He determines the quantity he intends to sell at a given price. It is still possible to change the price if all sellers act together.

Demand in this market is quite stable, that is, there are no sharp fluctuations in demand. Buyers do not care which manufacturer they buy the product from, since it is standard. It turns out that both sellers and buyers have no choice at what price to sell or buy a product. They can only do this at the prevailing market price.

Market of perfect (pure, free, ideal) competition is a favorite market of economists in which they study the behavior of producers and consumers. Although this market is a theoretical model, it is of great practical importance because it can explain the real situation in markets close to perfect competition. Economists include markets for securities, currencies, branded gasoline, wheat, corn, milk and meat, cotton and wool, vegetables and fruits. Many economic theories, in particular supply and demand, are constructed in relation to a perfectly competitive market. In addition, it is a benchmark, a model for comparison with other markets.

Supply under conditions of perfect competition.

Let us assume that we have a market in which there is perfect competition. Perfect competition in the market is determined by two main characteristics:

All products offered by sellers are approximately the same.

There are so many buyers and sellers that no one buyer or seller can influence the market price. Because in perfect competition buyers and sellers must take the market price as a given, they are called price takers.

In real life, the definition of perfect competition perfectly fits such markets as the securities market, foreign currencies, and the wheat market, when thousands of farmers sell grain, and millions of buyers consume wheat and products made from it. No buyer or seller influences the price of wheat; everyone takes it for granted.

In reality, perfect competition is quite rare, and few markets come close to it. Of significant importance was not only the area of ​​practical application of our knowledge (in these markets), but also the fact that perfect competition is the simplest situation and provides an initial, reference sample for comparing and assessing the effectiveness of real economic processes.

Of course, within a short period of time, under conditions of perfect competition, a firm can earn excess profits or incur losses. However, for a long period, such a prerequisite is unrealistic, since in conditions of free entry and exit from the industry, too high profits attract other firms to this industry, and unprofitable firms go bankrupt and leave the industry.

Perfect competition helps to allocate limited resources in such a way as to achieve maximum satisfaction of demand. This is ensured under the condition that P = MC. This provision means that firms will produce the maximum possible amount of output until the marginal cost of the resource is equal to the price for which it was purchased. This achieves not only high efficiency in resource allocation, but also maximum production efficiency. Perfect competition forces firms to produce products at the minimum average cost and sell them at a price corresponding to these costs. Graphically, this means that the average cost curve is just tangent to the demand curve. If the cost of producing a unit of output were higher than the price (AC > P), then any product would be economically unprofitable, and firms would be forced to leave this industry. If average costs were below the demand curve and, accordingly, the price (AC< Р), это означало бы, что кривая средних издержек пересекала кривую спроса и образовался некий объем производства, приносящий сверхприбыль. Приток новых фирм рано или поздно свел бы эту прибыль на нет. Таким образом, кривые только касаются друг друга, что и создает ситуацию длительного равновесия: ни прибыли, ни убытков.

There are three periods of supply elasticity: short-term, medium-term and long-term. In the short term, the firm is unable to change the volume of output and is forced to adapt to demand, changing only the price. In the medium term, an enterprise can increase production volume using immediate reserves, existing stocks and intensification of labor. In the long term, it is possible to restructure production and replace old equipment with new technically advanced capacities. In the long run, the elasticity of supply reaches its maximum value; in the short run, it is completely inelastic.

Improving production, reducing production costs, automating all processes, optimizing the structure of enterprises - all this is an important condition for the development of modern business. What's the best way to get businesses to do all this? Only the market.

The market refers to the competition that arises between enterprises that produce or sell similar products. If there is a high level of healthy competition, then to exist in such a market it is necessary to constantly improve the quality of the product and reduce the level of overall costs.

The concept of perfect competition

Perfect competition, examples of which are given in the article, is the exact opposite of monopoly. That is, this is a market in which there is an unlimited number of sellers who deal in the same or similar goods and at the same time cannot influence its price.

At the same time, the state should not influence the market or engage in its full regulation, since this can affect the number of sellers, as well as the volume of products on the market, which is immediately reflected in the price per unit of goods.

Despite the seemingly ideal conditions for doing business, many experts are inclined to believe that, in real conditions, perfect competition will not be able to exist in the market for long. Examples that confirm their words have happened repeatedly in history. The end result was that the market became either an oligopoly or some other form of imperfect competition.

may lead to decline

This is due to the fact that prices are constantly decreasing. And if the human resource in the world is large, then the technological one is very limited. And sooner or later, enterprises will move to the point where all fixed assets and all production processes will be modernized, and the price will still fall due to competitors’ attempts to conquer a larger market.

And this will already lead to functioning on the verge of the break-even point or below it. The situation can only be saved by influence from outside the market.

Main features of perfect competition

We can distinguish the following features that a perfectly competitive market should have:

A large number of sellers or manufacturers of products. That is, the entire demand that exists on the market must be covered not by one or several enterprises, as in the case of a monopoly and oligopoly;

Products on such a market must be either homogeneous or interchangeable. It is understood that sellers or manufacturers produce a product that can be completely replaced by the products of other market participants;

Prices are set only by the market and depend on supply and demand. Neither the state nor specific sellers or manufacturers should influence pricing. The price of a product should be determined by the level of demand as well as supply;

There should be no barriers to entry or exit into a perfectly competitive market. Examples can be very different from the field of small business, where special requirements have not been created and special licenses are not needed: atelier, shoe repair services, etc.;

There should be no other external influences on the market.

Perfect competition is extremely rare

In the real world, it is impossible to give examples of perfectly competitive firms, since there is simply no market that functions according to such rules. There are segments that are as close as possible to its conditions.

To find such examples, it is necessary to find those markets in which small businesses mainly operate. If the market where it operates can be entered by any company and easily exited, then this is a sign of such competition.

Examples of perfect and imperfect competition

If we talk about imperfect competition, monopoly markets are its clear representative. Enterprises that operate in such conditions have no incentive to develop and improve.

In addition, they produce such goods and provide such services that cannot be replaced by any other product. This explains why it is poorly controlled and established through non-market means. An example of such a market is an entire sector of the economy - the oil and gas industry, and the monopoly company is OJSC Gazprom.

An example of a perfectly competitive market is the car repair industry. There are a lot of different service stations and auto repair shops both in the city and in other localities. The type and amount of work performed is almost the same everywhere.

It is impossible in the legal field to artificially increase prices for goods if there is perfect competition in the market. Everyone has seen examples confirming this statement more than once in their life on the regular market. If one vegetable seller raised the price of tomatoes by 10 rubles, despite the fact that their quality is the same as that of competitors, then buyers will stop buying from him.

If when can influence the price by increasing or decreasing supply, then in this case such methods are not suitable.

With perfect competition, you cannot independently increase the price, as a monopolist can do.

Due to the large number of competitors, it is impossible to simply increase the price, since all customers will simply switch to purchasing relevant goods from other enterprises. Thus, an enterprise may lose its market share, which will entail irreversible consequences.

In addition, in such markets there is a reduction in prices for goods by individual sellers. This occurs in an attempt to “win” new market shares to increase revenue levels.

And in order to reduce prices, it is necessary to spend less raw materials and other resources on the production of one unit of product. Such changes are possible only through the introduction of new technologies and other processes that can reduce the level of costs of doing business.

In Russia, markets that are close to perfect competition are not developing fast enough

If we talk about the domestic market, perfect competition in Russia, examples of which are found in almost all areas of small business, is developing at an average pace, but it could be better. The main problem is the weak support of the state, since so far many laws are aimed at supporting large manufacturers, who are often monopolists. In the meantime, the small business sector remains without special attention and the necessary financing.

Perfect competition, examples of which are given above, is an ideal form of competition from the understanding of pricing criteria, supply and demand. Today, in no other economy in the world can one find a market that meets all the requirements that must be met under perfect competition.

Examples of a perfectly competitive market make it clear how efficiently market relations work. The key concept here is freedom of choice. Perfect competition occurs when many sellers sell an identical product and many buyers purchase it. No one has the power to dictate terms or raise prices.

Examples of a perfectly competitive market are not very common. In reality, very often there are cases when only the will of the seller decides how much a particular product will cost. But with an increase in the number of market players who sell identical goods, unreasonable overestimation is no longer possible. The price is less dependent on one specific merchant or a small group of sellers. With a serious increase in competition, on the contrary, buyers determine the cost of the product.

Examples of a perfectly competitive market

In the mid-1980s, agricultural prices fell sharply in the United States. Dissatisfied farmers began to blame the authorities for this. In their opinion, the state has found a tool to influence agricultural prices. It dropped them artificially in order to save on mandatory purchases. The drop was 15 percent.

Many farmers personally went to the largest commodity exchange in Chicago to make sure they were right. But they saw there that the trading platform unites a huge number of sellers and buyers of agricultural products. No one is able to artificially lower the price of any product, since there are a huge number of participants in this market on both sides. This explains that in such conditions unfair competition is simply impossible.

Farmers personally saw at the stock exchange that everything is dictated by the market. Prices for goods are set regardless of the will of one particular person or state. The balance of buyers and sellers determined the final price.

This example illustrates this concept. Complaining about fate, US farmers began to try to get out of the crisis and no longer blamed the government.

Signs of perfect competition

These include the following:

• The price of a product is the same for all buyers and sellers in the market.
• Product identity.
• All market players have full knowledge of the product.
• A huge number of buyers and sellers.
• None of the market participants individually influences pricing.
• The manufacturer has the freedom to enter any area of ​​production.

All of these features of perfect competition, as presented, are very rarely present in any industry. There are few examples, but they exist. These include the grain market. Demand for agricultural goods always regulates pricing in this industry, since it is here that all of the above signs can be seen in one area of ​​production.

Advantages of perfect competition

The main thing is that in conditions of limited resources, distribution is more equitable, since the demand for goods determines the price. But the increase in supply does not allow it to be particularly overestimated.

Disadvantages of Perfect Competition

Perfect competition has a number of disadvantages. Therefore, you cannot completely strive for it. These include:

• The model of perfect competition slows down scientific and technological progress. This is often due to the fact that the sale of goods, when supply is high, is sold slightly above cost with minimal profit. Large investment reserves are not accumulated, which could be used to create more advanced production.
• Products are standardized. No uniqueness. No one stands out for their sophistication. This creates a kind of utopian idea of ​​equality, which consumers do not always accept. People have different tastes and needs. And they need to be satisfied.
• Production does not calculate the maintenance of the non-productive sector: teachers, doctors, army, police. If the entire economy of the country had a complete, perfect form, humanity would forget about such concepts as art and science, since there would simply be no one to feed these people. They would be forced to go into the manufacturing sector for a minimum source of income.

Examples of a perfectly competitive market showed consumers the homogeneity of products and the lack of opportunity to develop and improve.

Marginal revenue

Perfect competition has a negative impact on the expansion of business enterprises. This is related to the concept of “marginal revenue”, due to which firms do not dare to build new production facilities, increase acreage, etc. Let’s take a closer look at the reasons.

Let's say one agricultural producer sells milk and decides to increase production. At the moment, the net profit from one liter of product is, for example, 1 dollar. Having spent funds on expanding feed supplies and building new complexes, the enterprise increased production by 20 percent. But his competitors also did this, also hoping for stable profits. As a result, twice as much milk entered the market, which reduced the cost of finished products by 50 percent. This led to production becoming unprofitable. And the more livestock a producer has, the more losses he incurs. The perfectly competitive industry goes into recession. This is a vivid example of marginal revenue, beyond which the price will not rise, and an increase in the supply of goods to the market will only bring losses, not profits.

The antipode of perfect competition

It is unfair competition. It occurs when there are a limited number of sellers on the market, and the demand for their products is constant. In such conditions, it is much easier for enterprises to reach an agreement among themselves, dictating their prices on the market. Unfair competition is not always a conspiracy or a scam. Very often, associations of entrepreneurs occur in order to develop common rules of the game, quotas for manufactured products for the purpose of competent and effective growth and development. Such firms know and calculate profits in advance, and their production is deprived of marginal revenue, since none of the competitors suddenly throws a huge volume of products onto the market. Its highest form is a monopoly, when several large players unite. They are losing competition. In the absence of other producers of identical goods, monopolies can set inflated, unreasonable prices, receiving excess profits.

Officially, many states fight such associations by creating antimonopoly services. But in practice their struggle does not bring much success.

Conditions under which unfair competition occurs

Unfair competition occurs under the following conditions

• A new, unknown area of ​​production. Progress does not stand still. New science and technology appear. Not everyone has huge financial resources to develop technology. Often, several leading companies create more advanced products and have a monopoly on their sales, thereby artificially inflating the price of a given product.
• Productions that depend on powerful associations into a single large network. For example, the energy sector, the railway network.

But this is not always detrimental to society. The advantages of such a system include the opposite disadvantages of perfect competition:

• Huge windfalls allow you to invest in modernization, development, and scientific and technological progress.
• Often such enterprises expand the production of goods, creating a competition for customers between their products.
• The need to protect one's position. Creation of the army, police, public sector workers, since many free hands are freed up. There is a development of culture, sports, architecture, etc.

Results

To summarize, we can conclude that there is no system that is ideal for a particular economy. Every perfect competition has a number of disadvantages that slow down society. But the arbitrariness of monopolies and unfair competition only leads to slavery and a miserable existence. There is only one result - you need to find a middle ground. And then the economic model will be fair.

Differentiation is the variety of a product; product differentiation leads to the fact that a single market breaks up into separate, relatively independent parts.

3. Describe the features of an oligopolistic market. What is the main barrier to entry into an oligopolistic industry?

It is a market dominated by a few large firms, i.e. a few sellers facing many buyers. Although there is no clear quantitative criterion for oligopoly, there are usually from three to ten firms in such a market.

The barrier to entry into the industry is ownership of non-renewable resources and monopoly access to sources of raw materials.

4. Explain the principle of choosing the optimal size of output under conditions of monopolistic competition.

The profit-maximizing output of QSR is determined by the intersection of the marginal revenue and marginal cost curves (MR=MC).

5. List the main types of oligopoly.

Uncoordinated oligopoly, Cartel (or collusion) of firms, Cartel-like market structure (or “playing by the rules”)

6. The inefficiency and losses for society associated with monopolistic competition are often emphasized:

the firm is not operating at the lowest point of its long-run average cost;

the gap between price and marginal costs, as in conditions of pure competition, means a certain “underproduction” of products;

reduction of a large number of small firms, since their presence on the market would lead to lower prices.

Do you have any arguments in defense of monopolistic competition?

Legal (lat. legalis - legal) monopolies formed on a legal basis. These include the following forms of monopolistic organizations: the patent system, copyrights, trademarks - all this protects our market from substandard goods.

• 7. What are the positive and negative consequences of market oligopolization?
• - large firms have significant financial opportunities for scientific developments and technical innovations;
• - competition between firms belonging to oligopolies contributes to the development of scientific and technological progress.
• - oligopolies are not so afraid of competitors, since it is almost impossible to penetrate the industry. Therefore, they are not always in a hurry to introduce new equipment and technologies;
• - by concluding secret agreements, oligopolies seek to benefit at the expense of buyers (for example, they increase prices for products), which reduces the level of satisfaction of people's needs;
• 8. What level of prices, output volumes and profits develop under the rule of cartels?

So, this whole thing is not much different from a similar task for a multi-factory company. First, in accordance with the MR=MC rule, the total production volume of the cartel as a whole is established, and MC is formed by horizontally summing all cartel participants. At point Qk the optimal production volume of the cartel is established. In accordance with the demand curve D, such a volume can be sold at a price Po. Now the selected volume needs to be distributed among the participants. Each participant must produce goods in a volume at which its marginal costs will be equal to the profit-maximizing level of marginal costs of the entire cartel. Qa and Qb are the corresponding volumes of firms and production levels for each cartel participant. Of course, each participant will produce as many products as needed to fulfill the rule

Thus, if we consider the cartel as a single whole, the described procedure is ideal, since 1) the cartel produces the optimal volume of products from the point of view of profit maximization; 2) distribution of this output among participants minimizes costs.

In short, the output of cartel members will always be equal to the cartel's optimal output. Moreover, with this method of quota distribution, the marginal costs of all its participants and the entire cartel are equal, i.e. condition is met

Typically, firms with different levels of costs join together in a cartel. Therefore, the profit of one company may be greater than that of another. In other words, when a cartel is created, some participants benefit more than others. Therefore, it is not profitable for firms with small profits to participate in the cartel, and in order to interest them, firms with large profits share in one form or another with those who are not interested.

9. What are syndicates? Describe the role of cartel agreements in Tsarist Russia and in modern conditions in our country.

Syndicates were common in Russia at the beginning of the century - associations of manufacturers who own a single subsidiary, which is the only seller of their products, that is, in fact, a monopolist. Since there is no direct collusion between oligopolists, only an agreement with society, antimonopoly legislation is powerless.

Cartels had a sharply negative impact on the Russian economy in the early 20th century. There was an increase in prices, an understatement of production volumes, a “hunger of goods”, a deliberate deterioration in the quality of products and a slowdown in technical progress. Cartels were banned in Tsarist Russia much earlier than in the West, which led to the emergence of syndicates. Due to legal prohibition, cartels do not exist in modern Russia, but the practice of one-time price collusion is very widespread, which leads to periodic shortages of certain goods. Often, various associations of manufacturers or importers try to carry out functions close to cartels.

10. What are the specific conditions of the monopolistic competition market?

A monopolistic competition market consists of many firms offering their goods at prices that fluctuate over a wide range. The presence of a wide range of prices is explained by the ability of sellers to offer customers different product options. The products are not completely interchangeable and differ from each other not only in physical characteristics, quality, design, but also in consumer preference. The differences between the products justify the wide range of prices. Buyers take into account the differences in offers and are willing to pay different prices for goods. To differentiate themselves beyond price, sellers seek to develop differentiated offerings for specific consumer segments and make extensive use of branding, advertising, and targeting of specific consumers or groups. An example of a monopolistic competition market is the production of clothing, soft drinks, washing powder, computing equipment, and computers. In a market of monopolistic competition, a company becomes, as it were, a “monopolist” of its brand of product. The monopolistic competition market has the following features: 1. Intense competition between firms. 2. Differentiation of goods produced by competing firms due to differences in properties and the provision of unequal additional services. 3. Ease of market penetration. The peculiarity of marketing in these conditions is to identify the specific needs of buyers of different market segments. In conditions of monopolistic competition, a company sets its price using a specific strategy. The most common strategy is geographic pricing, where a firm sells products to consumers in different parts of the country at different prices.

11. Describe the features of a monopolistic market. What barriers limit the access of new firms to it?

Peculiarities monopolistic market:

There is only one manufacturer on the market that supplies a product without close substitutes.

The monopolist is opposed by a large number of isolated consumers who individually do not influence the price

The monopolist is active in the market, the company chooses not only the volume of production, but also the price price-searcher, consumers are passive, forced to adapt to the price of the monopolist

The monopolist works with the demand curve of the entire industry i.e. sets the price so that all products are purchased by the consumer

In a monopoly market, the supply curve disappears, as the monopolist looks for price-volume options along the demand curve.

The main barriers existing in a monopolistic industry are:

Advantages of large-scale production up to natural monopoly

Legal barriers: monopoly ownership of sources of raw materials, land, rights to scientific and technical achievements, state-sanctioned exclusive rights, unfair competition.

12. Market equilibrium under monopoly conditions.

According to some estimates, about 75% of all enterprises in economically

developed countries compete in markets where sales functions under conditions of monopolistic competition. The competitive environment is filled with a large number of small and medium-sized enterprises, none of which have a significant share of total sales. The key competitive feature of such a market is the absence of widely known leaders who have a significant influence on the development of conditions and trends in the industry. This condition can be explained by economic and historical reasons:

• -low “entry” and “exit” barriers in the industry;
• -lack of economic feasibility of large scale

production due to the high degree of product differentiation, needs

buyers in individually manufactured goods, significant differences in markets located in different territories and other reasons that do not allow organizing mass large-scale production and achieving the economic effect on unit costs;

• -state regulation of business in order to maintain a high level of competition in the industry;
• - “youth” of the industry, when none of the enterprises has yet accumulated

experience and means to occupy a large market share.

a) short-term time interval | b) long-term period |

Some markets where monopolistic competition prevails

are consolidated as they develop. Fierce competition destroys weak, inefficient enterprises and leads to greater concentration of production in large, powerful companies. However, this does not always happen. Often, for economic reasons, enterprises are not able to destabilize the current situation due to the fact that none of them can radically change the above characteristics of the competitive environment.

In conditions of monopolistic competition, each enterprise, having achieved equality of marginal costs (MC) and marginal revenue (MR), can receive economic profit. However, in the future, other enterprises will appear on the profitable market. This partially reduces demand, thereby “lowering” the demand curve for each “old” firm. Their struggle to maintain their market share, as a rule, increases the costs of production and sales of products. The emergence of “new” enterprises will continue until a long-term equilibrium is established, reducing income

13. What is price discrimination? What types of it do you know?

Price discrimination is the setting of different prices for the same product sold to different buyers, or the setting of different prices for different units of the same product sold to the same buyer.

There are several types of price discrimination by degree:

• 1st degree: perfect discrimination: each unit of goods is sold to the individual who values ​​it highest, that is, the consumer pays the maximum price for him for the product; an abstract situation.
• 2nd degree: a monopolist sells a product at different prices, but everyone who buys the same number of units of the product pays the same price, that is, if you buy more, you pay less.
• 3rd degree: different prices are set for buyers with different levels of financial security.

In Russian conditions, both 2nd and 3rd degrees of discrimination are widespread. The 3rd degree of discrimination in Russia is clearly visible in the system of telephone tariffs: low-income citizens pay less than the majority, firms and organizations pay more. The second degree is even more common in modern conditions. Example: discounts in stores during a pre-New Year sale or at a company purchasing consumables for a product previously purchased there.

• 14. Do you agree with the statement: “A pure monopolist can raise the price of his product unlimitedly: after all, he is the only producer in the industry. The demand curve for his product is absolutely inelastic.” Do you agree with this statement
• 15. How is antimonopoly policy implemented in relation to natural and artificial (entrepreneurial) monopolies?

B. When characterizing the equilibrium of a monopolistic competitor firm in the long run, specifically justify the following points:

Can equilibrium under monopolistic competition be reached at the same point on the cost curve as under perfect competition (tangent to the minimum average total cost)?

Explain why monopolistic competition occurs only with a differentiated product, and oligopoly with both a differentiated and homogeneous product.

Which market is more monopolized? Compare two markets: market No. 1, in which there are three firms that control 50%, 40%, and 10% of production, and No. 2, in which there are firms that control 35%, 35%, and 30% of production.

The main features of the market structure of perfect competition in the most general form were described above. Let's take a closer look at these characteristics.

1. The presence in the market of a significant number of sellers and buyers of this good. This means that not a single seller or buyer in such a market is able to influence the market equilibrium, which indicates that none of them has market power. Market subjects here are completely subordinated to the market elements.

2. Trade is carried out in a standardized product (for example, wheat, corn). This means that the product sold in the industry by different firms is so homogeneous that consumers have no reason to prefer the products of one company to the products of another manufacturer.

3. The inability of one firm to influence the market price, since there are many firms in the industry, and they produce standardized goods. In perfect competition, each individual seller is forced to accept the price dictated by the market.

4. Lack of non-price competition, which is due to the homogeneous nature of the products sold.

5. Buyers are well informed about prices; if one of the manufacturers increases the price of their products, they will lose buyers.

6. Sellers are not able to collude on prices, which is due to the large number of firms in this market.

7. Free entry and exit from the industry, i.e., there are no entry barriers blocking entry into this market. In a perfectly competitive market, there is no difficulty in starting a new firm, nor is there any problem if an individual firm decides to leave the industry (since firms are small in size, there will always be an opportunity to sell the business).

As an example of markets of perfect competition, markets for certain types of agricultural products can be mentioned.

For your information. In practice, no existing market is likely to meet all the criteria for perfect competition listed here. Even markets that are very similar to Perfect Competition can only partially satisfy these requirements. In other words, perfect competition refers to ideal market structures that are extremely rare in reality. However, it makes sense to study the theoretical concept of perfect competition for the following reasons. This concept allows us to judge the principles of functioning of small firms existing in conditions close to perfect competition. This concept, based on generalizations and simplification of analysis, allows us to understand the logic of firm behavior.

Examples of perfect competition (with some reservations, of course) can be found in Russian practice. Small market traders, tailor shops, photo studios, car repair shops, construction crews, apartment renovation specialists, farmers at food markets, and kiosk retail trade can be regarded as the smallest firms. All of them are united by the approximate similarity of the products offered, the insignificant scale of the business in terms of market size, the large number of competitors, the need to accept the prevailing price, i.e., many conditions of perfect competition. In the sphere of small business in Russia, a situation very close to perfect competition is reproduced quite often.

The main feature of a perfect competition market is the lack of control over prices on the part of the individual manufacturer, i.e., each firm is forced to focus on the price set as a result of the interaction of market demand and market supply. 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 product. In other words, a competitive firm will sell its product at the price already existing in the market. As a consequence of this situation, the demand curve for the product of an individual firm will be a line parallel to the x-axis (perfectly elastic demand). This is shown graphically in the figure.

Since an individual producer is not able to influence the market price, he is forced to sell his products at the price set by the market, i.e., at P 0.

A perfectly elastic demand for a competitive seller's product does not mean that the firm can indefinitely increase production at the same price. The price will be constant to the extent that normal changes in the output of a single firm are small compared to the output of the entire industry.

For further analysis, it is necessary to find out what will be the dynamics of the indicators of gross and marginal income (TR and MR) of a competitive company depending on the volume of production (Q), if the company sells any volume of production at a single price, i.e. P x = const . In this case, the TR graph (TR = PQ) will be represented by a straight line, the slope of which depends on the price of products sold (P X): the higher the price, the steeper the slope the graph will have. In addition, a competitive firm will face a marginal revenue schedule parallel to the x-axis and coinciding with the demand schedule for its product, since for any value of Q x the value of marginal revenue (MR) will be equal to the price of the product (P x). In other words, a competitive firm has MR = P x. This identity occurs only under conditions of perfect competition.

The marginal revenue curve of a perfectly competitive firm is parallel to the x-axis and coincides with the demand schedule for its product.