Competition

Contents

• Introduction to Competition
• Functions of Competition
• Types of Competition
• Advantages and Disadvantages of Competition
• State Regulation of Competition

Introduction to Competition

Competition is the struggle among participants in a market economy, such as companies and entrepreneurs, for attracting customers, increasing market share, and gaining access to resources, including raw materials, labor, capital, technology, and information. The term comes from the German word konkurrieren, meaning "to compete," and traces back to the Latin concurrere, which translates as "to run together." The concept of competition has existed since ancient times and was first noted in the 18th century when Scottish economist Adam Smith stated that competition is the natural state for an economy, as a market cannot function without the self-interests of its participants.

Today, the market economy includes numerous companies and entrepreneurs, each striving to profit by attracting more customers and increasing their sales and profits. This relentless pursuit leads to ongoing competitive struggles, a vivid example of which is the rivalry between Apple and Samsung in the smartphone market.

Functions of Competition

Competition in a market economy serves several key functions, including:

• Regulatory: Competition helps balance supply and demand. This means that companies strive to produce as many goods and services as necessary for customers, avoiding overproduction or shortages.
• Allocative: This aspect implies that competition forces businesses to locate in areas where it is most profitable and in demand. For example, order pickup points for marketplaces are opened near densely populated areas.
• Innovative: The presence of competitors encourages companies to develop and implement new technologies, leading to improved quality of goods and services.
• Adaptive: In order to survive in a competitive environment, companies must adapt to changes in the market and customer needs.
• Controlling: Competition gives consumers the opportunity to choose, which prevents abuses by companies.
• Distributive: Competition affects the distribution of resources, goods, and profits, allowing for a more efficient use of available resources.

Types of Competition

There are several types of competition that can be classified according to various criteria:

By Degree of Competition

• Perfect Competition: An ideal model that rarely occurs in reality. In such a market, there are a vast number of independent participants offering homogeneous products.
• Imperfect Competition: A more common form that includes monopolistic competition, monopoly, oligopoly, and other types.

By Methods of Competition

• Price Competition: Reducing prices through promotions, discounts, and bonuses.
• Non-price Competition: Improving the quality of products, services, and customer service conditions.
• Fair Competition: Honest methods of competition, adhering to legal and ethical standards.
• Unfair Competition: Wrongful actions such as industrial espionage and spreading false information.

Advantages and Disadvantages of Competition

Competition has its pros and cons:

• Advantages:
  • Expansion of choices of goods and services for consumers.
  • Encouragement of innovation and improvement in product quality.
  • Limitation of monopolization and abuse of market position.
  • Stimulus for economic growth and job creation.
• Disadvantages:
  • Instability and volatility in the market, which can lead to bankruptcies.
  • Increased expenses on advertising and promotion.
  • Unfair competitive practices can negatively affect business ethics.
  • Uneven distribution of income and social stratification.

State Regulation of Competition

To maintain healthy competition and prevent monopolization, states develop antitrust legislation. In Russia, for example, this is regulated by the Federal Law "On Protection of Competition," which is overseen by the Federal Antimonopoly Service (FAS). The FAS monitors violations of antitrust laws and can impose penalties on offenders.

Effective regulation of competition contributes to higher quality of goods and services, accessible prices, and greater choice for consumers, ultimately improving the economic situation in the country.