Kinds of markets and their classification.
According to the objects of market the following types are distinguished:
- commodity and service market. It includes consumer goods, foodstuffs, household and transport services, education and health care services;
- factors of production market:
a) labour market;
b) means of production market;
c) raw materials market.
- financial market which includes:
a) stock exchange;
b) currency market;
c) futures or spot market.
Classification of the markets.
1. On breadth of scope: the local, national and international markets.
2. On objects of sale and purchase: the markets of consumer goods and services, the markets of resources, the monetary market, a labour market, a securities market.
3. On branches of manufacture (the market of wheat, the market of cars, metals and so forth).
4. On presence of a competition: the competitive market and not competitive market.
In spacious respect the greatest market – the world market – is distinguished. It presupposes any goods exchanging processes between countries, concerning selling or buying goods and services independently from the agents of trade operations.
According to the objects, seller’s and buyer’s markets are distinguished.
Imperfect competition: monopoly, oligopoly, monopolistic competition.
One of the fundamental features of the market is competition, and it is traditional to divide industries into categories according to the degree of competition that exists between the firms within the industry.
Competitionis a market condition when there is more thanone producer of a specific good or service and consumers are free to choose which product to buy. On the one hand, producers want to maximize profits by selling as much as possible at high prices. On the other hand, buyers having budget constraint want ‘the most for the money’. Thus, producers, in order to compete successfully among other producers, seek to use resources efficiently. Thus competition is a market mechanism which encourages technological innovation, modernization, and rationalization.
It is traditional to divide industries into categories according to the degrees of competition: that exists between the firms within the industry. There are four such categories: perfect competition, monopolistic competition, an oligopoly, and a monopoly, the latter three representing imperfect competition. To distinguish between these four categories, the following must be considered:
Competition – is an element of market economy, it is the rivalry between participants of economic market, and it is the struggle for the sources of raw materials, for the market, profitable conditions of enclosure the capital, for a big profit share.
Competition has its place among entrepreneurs, undertakings, firms and also among industries, territories and states. The liberty of price formation creates right conditions for competition between economic subjects. But markets fulfill the guiding function only in case of economic competition exist- the rivalry of producers for the biggest income, and that reduces to social and economic instability of producers’ positions.
Competition is a typical for commodity production struggle between producers for the most beneficial conditions of production and sales of goods and for the greater profit. The essence of competition is vividly revealed in its positive and negative features
a) Positive and negative features of competition.
- competition is an important moving force of economic system development; it assist science-technical progress of society;
- competition stimulates the decrease of production costs by economizing of resources, the increase of labour productivity, improvement of labour discipline;
- it makes producers improve the quality of goods, its assortment and customer care;
- it stimulates cash flow between branches as a result of the maximum profit chase, thus activating the implementation of economic reforms in economy;
- it strengthens the process of production concentration which leads to the appearance of monopolies;
- as a result of the struggle for sales markets producers expand their production, manufacture an excessive number of goods that leads to the crisis of re-production;
- it strengthens the struggle between capitalists for the reduction of expenditures on production by decreasing of salaries that in its turn reduces solvent demand of population;
- competition provokes employees’ intense labour that results in increase of unemployment which negatively influences workers’ standard of living;
- the use of unfair methods of competition by large-scale companies leads to the destruction of small and middle-sized enterprises, their mass bankruptcy;
- international competition, from the side of multinational corporations is done by way of bribery and prevents national producers in other countries.
Types of competition.
a) Competition can be intrabranch and interbranch:
- Intrasectoral competition is a struggle between producers who are involved in one sphere of economy. It results in leveling of individual costs according to social or market cost which is the basis of market price.
- Intersectoral competitionis a struggle between firms and enterprises of different branches for maximum profit. The object of interbranch competition is a surplus product obtained as a result of re-allocation according to the cash flow from one branch to another.
b) There are price, non-price and non-economic types of competition:
- Price competition is a price manipulation in different markets, price decrease without any change of quality of goods, price discounts and discrimination in prices.
- Non-price competitionis competition by means of quality improvement, perfection of guarantee service and better organization of sales.
- Non-economic competitionmeans the use of secret agreements concerning sales market division, takeover of enterprises and industrial espionage etc.
b) Methods of competition - first of all it is the improvement of quality of goods and services, fast renewal of assortment, design, guarantee giving, timely price reduction etc.
a) Perfect competition market model, its characteristics.
Definition: Perfect competition is competition characterized by a great number of producers-competitors and buyers-competitors and by a free access of producers to any type of activity. Its peculiar features are:
- availability of many enterprises, producing homogeneous goods;
- a small size of a producing enterprise in the respect of the market;
- free access to the market;
- buyers and producers’ adaptation to the existing prices and their being as price receivers.
b) Imperfect competition market model, its characteristics.
Competition at which at least one of the signs of perfect competition is violated is called imperfect competition.
Definition: Imperfect competition is competition between large-scale, small and middle-sized companies. It is a struggle for the monopolization of sales markets, sources of raw materials, energy, state contracts obtaining, intellectual property possession etc. Its peculiar features are:
- the establishment of monopoly high prices;
- acquiring monopoly high profits on the basis of high prices.
c) Submodels of imperfect competition market.
It includes 3 market submodels: monopoly, oligopoly and monopolistic competition.
- An extreme case is a pure monopoly when only one enterprise dominates in some branch. The defining moment at this is not a size of the enterprise, but its share of production and sales on the market. Being the only seller, monopoly suggests a unique production which doesn’t have any substitute. Monopoly is protected from indirect by high entrance barriers to the branch. It can be connected with the economy of scale, with natural monopoly when an enterprise (in the sphere of hydro- or gas provision) gets privileges from government. Monopoly defines prices.
- Market structure in which a small number of sellers occupy a major position in some branch, and the entrance to the branch of new producers is limited by high barriers is called oligopoly. The characteristic feature of oligopoly is oligopoly connection: every enterprise-producer should take into account not only the interests of consumers but also the ones of other firms-producers of the market. The is the so called leadership in price determining, i.e. a secret agreement on prices. Oligopoly pricing is often done on the principle “expenditures plus”, when some definite per cent is added to average expenditures while price defining.
- On the market of monopolistic competition a great number of producers are engaged in production and distribution of goods. Every enterprise is relatively small in volume of production and sales. An important characteristic of monopolistic competition is product differentiation both real and false one, that is done by means of advertising, the use of trade marks etc. As the production of every enterprise is unique in the eyes of consumers, such market tends to acquire the traits of monopoly.
Monopolistic competitionis based on the fact thatconsumers may have preferences for different brands; so producers can sell products at higher prices than equilibrium. However, the control over the market is limited: if a price is too high, consumers can buy a good from another producer.
An oligopoly is a degree of competition when the market is dominated by a few large producers. Each firm is large enough to influence the price and entry of new firms is restricted.
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