Comparison of four market economy types
Market type mainly refers to market competition or monopoly type. According to the quantitative proportion and degree of competition of market entities in a certain commodity market, the market can be divided into four types: perfect competition market, complete monopoly market, monopolistic competition and oligopoly market.
There are many factors that affect market type, but the main ones are as follows:
(1) The relationship between the natural attributes of goods and the degree to which they meet people's needs.
(2) The technical complexity of producing goods.
(3) The level of organic composition of capital.
(4) The size of the economic scale of producing goods.
(5) The degree of social restrictions on market access.
1. Perfectly competitive market
Perfectly competitive market, also known as pure competitive market, refers to a market in which competition is completely free from any obstacles and interference.
A perfectly competitive market should meet the following conditions:
(1) There are many market entities, that is, a huge number of buyers and sellers. There are many sellers, and each seller’s share of the market is very small. Changes in the sales volume of individual buyers do not affect the market price of the commodity; at the same time, any one of the many buyers cannot respond to changes in their own demand. Have an effect on market prices.
(2) The market objects are homogeneous, that is, there is no difference in products, and buyers have no special preference for who the specific seller is. In this way, different sellers can compete on a completely equal footing.
(3) The total production resources of the estrangement can flow completely freely, and each manufacturer can freely enter or exit the market according to its own wishes.
(4) The information is sufficient, that is, consumers fully understand the market price, performance characteristics and supply status of the product; producers fully understand the price of inputs, the price of finished products and the status of production technology.
The market closest to the above conditions is the agricultural product market. Therefore, the agricultural product market is generally called a perfectly competitive market.
The price formation and operation effect of a perfectly competitive market:
In a perfectly competitive market, the market price is determined by the competition between supply and demand. Individual buyers and individual buyers are just this. price taker. In other words, at the price specified by the market, the market's demand for individual buyers' products is unlimited, and the supply of individual buyers' products is also unlimited.
Perfectly competitive market is the most ideal type of market. Because in this market condition, price can fully exert its regulatory role and achieve market price = marginal cost = average cost in the long-term equilibrium. From the perspective of the entire society, total supply and total demand are equal, and resources are optimally allocated.
However, a perfectly competitive market also has its characteristics. For example: undifferentiated products cause consumers to lose their freedom of choice; the lowest average cost of each manufacturer does not necessarily result in the lowest social cost; producers with small production scales cannot make major technological breakthroughs. In the realization of economic life, perfect competition is rare, and, generally speaking, competition will eventually lead to the formation of monopoly.
2. Complete monopoly market
A complete monopoly market, also known as an exclusive market, refers to a market that is completely controlled by one enterprise.
Conditions for the existence of a complete monopoly market:
(1) The seller is the only one with no other branches, but there are many buyers.
(2) Due to various restrictions, such as technology patents, exclusive rights, etc., other sellers are unable to enter the market.
(3) The market object is unique and there are no substitutes.
Although complete monopoly is a special economic situation, its existence is still inevitable.
1. The requirement of economies of scale is to become a "natural monopoly" industry.
2. Exclusive monopoly on certain special resources can easily lead to complete monopoly.
3. Government franchising or coercion will form a monopoly.
The market price formation and operating effects of a complete monopoly:
In a complete monopoly market, because there is only one seller, this seller can control the price. The manipulated price must be higher than the actual price. Because as a price setter, a monopoly knows that not selling one more unit of product will lead to a drop in price, which will cause it to control the price by limiting output, thereby keeping the price at a high level in order to obtain the maximum profit. profit.
Generally speaking, the operation of a completely monopolized market is harmful to the social economy. Because: 1. Since the monopoly price is higher than the competitive price, consumers will spend more to purchase the same use value than in the competitive market. 2. Since a completely monopolized market cannot allow 2 producers to produce on an optimal scale, it will cause a waste of resources. 3. Monopolist manufacturers can rely on monopoly rights to obtain excess profits for a long time, which is unfair in distribution.
But not all complete monopolies are harmful. For example, some complete monopolies, especially government monopolies on certain public utilities, do not aim at pursuing excess profits. These public utilities often require large investments, long cycles and low profits, but they are necessary for economic development and people's lives. Government monopoly operation will generate external benefits and bring benefits to society. Perfectly competitive markets and perfect monopoly markets are extreme types of markets. More common in the economy are market types composed of varying degrees of monopoly and competition, namely monopolistic competition markets and oligopoly markets.
3. Monopolistic competition market
Monopolistic competition market refers to a market that has both monopoly and competition, but is neither perfect competition nor complete monopoly.
Conditions for the existence of a monopolistic competition market: 1. There are differences between products. Product differences refer to differences in performance, quality, appearance, packaging, trademarks or sales conditions of the same type of products. Precisely because products are different, different products can form a monopoly position among some consumers with their own characteristics; also precisely because the differences are only differences between similar products, the use value of similar products will form a monopoly and competition that coexist. status. 2. There are many suppliers in the market, and no one has a clear advantage, so they are competing with each other. 3. There are fewer obstacles for manufacturers to enter or exit the market. 4. Both parties to the transaction can obtain sufficient information.
The price formation and operating effects of the monopolistic competition market:
The main feature of the monopolistic competition market is that there is both limited monopoly and incomplete competition in this market. This feature represents the price difference.
The effects of monopolistic competition in the market operation are beneficial and harmful. For consumers, the benefit is that products with different characteristics can satisfy consumers' different preferences; the disadvantage is that this benefit requires a higher price. For producers, the existence of short-term excess profits can stimulate their intrinsic motivation to innovate, but monopolistic competition will increase sales costs.
4. Oligopoly Market
Oligopoly market refers to a market monopolized by a few manufacturers.
The reason for the formation of oligopoly market is that there are barriers to entry in this type of market. For example, the average cost of certain products will fall only after the output reaches a certain scale, and production will be beneficial; or there is a monopoly of resources in a certain industry; or the oligarchs themselves have adopted various exclusive measures; or the government has imposed restrictions on these products. The oligarchs gave copies and support etc.
The price formation and operating effects of the oligopoly market:
In the oligopoly market, each manufacturer has a considerable share of the output, so each manufacturer has a significant influence on the entire industry. prices have a significant impact. However, when making price and output decisions, each manufacturer must not only consider its own costs and benefits, but also consider the impact of the decision-making and the possible reactions of other manufacturers.
The possibility of working together to maximize profits will lead oligopoly manufacturers to reach certain agreements on price and output through various explicit or covert forms. For example, if a trade association or cartel is legally organized, the association or cartel specifies prices and allocates production quotas. A more common approach is to adopt a price leadership system, in which one or a few oligarchs take the lead in setting the price, with the hope that the oligarchs will follow the weather to determine their own prices.
However, the strength of the oligarchs is always different and always changing. Therefore, there is an incentive for each oligarch to proceed from its own interests and strive to seek maximum individual profits. This incentive can make it difficult for oligarchs to reach an agreement or an output agreement, or to secretly violate the agreement after reaching an agreement. As they deviate more from the agreement, prices and output will eventually converge toward the equilibrium level of a competitive market.
Oligopoly markets can achieve economies of scale; at the same time, prices are relatively stable and facilitate government management of the industry. In addition, oligopoly is also conducive to promoting scientific and technological progress. Competition among oligarchs provides impetus and pressure for technological innovation, and their strong strength provides huge funds for technological innovation.
The main drawbacks of the oligopoly market are: price agreements between oligarchs will raise prices and harm consumer interests; barriers to market entry limit competition and are not conducive to the free flow and optimal allocation of resources.