Competition is the economic rivalry of isolated subjects of a market economy for the satisfaction of their economic interests. Competition is an essential element of a market economy, as it is the main driver of entrepreneurial activity.
Instructions
Step 1
Supply, demand and competition are the main elements of the market pricing mechanism. Under the influence of supply and demand in an efficient market, an equilibrium price should be formed, while individual producers cannot have a significant impact on the price. The balance of supply and demand is possible only in conditions of perfect competition. In a real economy, it is virtually impossible to fully ensure such conditions, therefore, a true price equilibrium that would satisfy buyers and sellers can only be considered theoretically. In reality, economic actors most often operate in conditions of imperfect competition, in which case individual producers can influence market prices.
Step 2
An enterprise operating in a market economy strives to bypass its competitors, make a profit and conquer new sales markets.
Competition methods are subdivided into price and non-price methods. Price competition is based on price management, while actively using price discrimination, when the same goods are sold to different groups of consumers at different prices. Non-price methods are aimed at improving the quality of the product and the conditions for its sale, as well as improving the quality of customer service.
Step 3
Competition can develop within a particular industry or between market actors who operate in different industries. Competition among manufacturers in the same industry allows for the identification of non-competitive and incentives for efficient manufacturers. Inter-industry competition arises due to different rates of profit in individual industries, this type of competition stimulates the modernization and optimization of various industries.
Step 4
Distinguish horizontal and vertical competition. Horizontal competition is a kind of intra-industry competition; with such competition, manufacturers of one type of product compete in the market. Vertical competition is a type of cross-industry competition; in this type of competition, manufacturers of products and services that can satisfy the same customer need compete.
Step 5
Competition in an imperfect market can lead to the formation of various monopolistic associations. Such groups of commodity producers can influence the price of a product; they strive to ensure a stable position in the market or to occupy a certain share of it.
