The evolution of competition theory: competition as a structure and as a process
N.G. Butskaya,
канд. экон. наук, ст. преп., Московский государственный университет им. М.В. Ломоносова (119991, Россия, г. Москва, Ленинские горы, д. 1, стр. 46; e-mail: nbutskaya@mail.ru)
Аннотация. В статье рассматривается эволюция представлений о конкуренции в взглядах представителей основных экономический школ. Анализируются преимущества и недостатки структурного и процессного подходов к исследованию конкуренции. Обосновывается необходимость создания единой теории конкуренции, которая бы непротиворечивым образом интегрировала в себе все существующие трактовки данного явления и подходы к его исследованию.
Abstract. The author of the article explores the evolution of the theory of competition that is presented in the conceptions of the major schools of economics. Analyzes the difference between the structural and process-based approaches to competition research. Explains the necessity to formulate a general theory of competition that would consistently integrate all the considered models of the phenomenon.
Ключевые слова: конкуренция, теория конкуренции, конкурентный процесс, эффективная конкуренция, предпринимательство.
ship.
Keywords: competition, theory of competition, competitive process, competition efficiency, entrepreneur-
The term "competition" is increasingly used as a synonym for panacea for any problem in the market economy. The development of institutions of competition and private property is considered to be an effective tool to stimulate the market economy and is often highly recommended as the only way out of a complicated economic situation. The value of competition in the market is evident but the meaning of the term "competition" is still arguable in most cases. There is no agreement among scientists about the essence of competition, its effectiveness and economic functions. The state's policy on regulating competition and the influence of society are important factors in ensuring the effectiveness of competition, but their role remains unclear.
There is a conception of efficient competition in economic literature. It implies a group of rules and conditions which coordinate the actions of market participants in a natural manner so that any inconsistencies, lack of coordination and inefficiencies in the market are resolved automatically. Nevertheless there is also the term "unfair competition", which doesn't match the meaning above but still remains a part of the phenomenon of "competition". It is obvious that there is some common component of "competition" and "unfair competition". This makes the essence of the term "competition" more complicated.
There are many topical questions which economists need to answer. What is the real profit of competition for society? What requirements must it meet in order to realize that profit? Where is the dividing line between competition that is efficient and competition that is destructive (i.e. fair but destructive for the economy)? Who determines the limits of competitive actions and how should this be done?
Competition is a very complicated multilevel phenomenon in which some aspects are more evident than others. Economists usually direct their attention to the most apparent features of competition and leave the heart of the problem unexplored.
As a result of this approach, the idea of effective competition looks oversimplified, restricted and inconsistent at the same time.
Hens it is obvious that the definition of competition must not only convey its essence but also accommodate its different forms of embodiment. It is possible to make such a definition only within a systemic approach which aims to create a general theory of competition. As we still do not have such a theory, we could examine conceptions of competition that have been developed by the most prevalent schools of economic thought. Each of these schools analyses competition from its own point of view, which is determined by its scientific aim and methodology. It is possible to classify them as static and dynamic.
The first dynamic conception of competition was developed by Adam Smith in his scientific study "An Inquiry into the Nature and Causes of the Wealth of Nations". He may be considered to have laid the foundations of the exploration of competition as an economic conception. Smith considers competition as a force which influences the market through the interaction of demand and supply and thus directs it to a market equilibrium. This equilibrium is characterized by a price which Smith called "natural".
Smith proceeds from the conception of "homo economicus", according to which people act rationally and aim at satisfying their private economic needs. As their aims often coincide, they are forced to enter rivalry with each other. In Smith's opinion, the reason for competition is market imbalance, which means a situation when market demand is not equal to market supply. This market imbalance causes competition between customers or between sellers, depending on whether there is a lack or surplus of goods. This disproportion is regulated by setting a natural price, which is determined automatically: "When the quantity brought to market is just sufficient to supply the effectual demand, and no more, the market price naturally comes to be
Экономика и предпринимательство, № 8, 2014 г.
either exactly or as nearly as can be judged of, the same with the natural price. The whole quantity upon hand can be disposed of for this price, and cannot be disposed of for more. The competition of the different dealers obliges them all to accept of this price, but does not oblige to accept of less". [6, p.59]
This arrival at a natural price can be provided only by free competition, which also provides rational resource allocation and differentiates effective and ineffective economic entities. Competition is an objective process, which makes the market economy coordinated without the need for any purposeful action. It is considered that Adam Smith's famous expression about the "invisible hand" relates exactly to this process. It allows us to explain how the mechanism of the market economy directs human self-interested behavior to the economic wealth of society.
Therefore, competition is a faceless force, which constitutes an ideal and natural mechanism for regulating the balance of supply and demand by means of determining the market price. The market price is the main object of competition. No one person or organization among business rivals can deliberately influence it. Price competition becomes the principal means of competitive struggle in this case.
Smith was also the first economist to describe the conditions for developing effective and fair competition: the market product is standardized; there are many sellers and customers, who are not able to influence the price; information about all the alternatives and options of the market is freely available to every participant.
Thus Adam Smith laid the foundation of the behavioral approach to competition which was subsequently developed within neoclassical economics.
Followers of neoclassical economics (the most famous of them being Alfred Marshall) continued the development of the theory of competition. They agreed with its classical definition, but in their work it lost the features of a dynamic process and became a static structure. This structure has two principal forms - perfect competition and imperfect competition. They differ in a range of market characteristics. The neoclassical theory of competition was called the "structural approach", as the market structure appeared at the center of its conceptualization.
The perfectly competitive market is the embodiment of the most effective form of the market when none of the participants can influence the price and each of them is a "price taker", so that they can compete only by means of changing their output volume. It follows that the profit of the "price taker" cannot be more than the normal profit for this market. Moreover, the lack of opportunity to get economic profit became the sign of, and the rule for, an effective and, hence, competitive market, according to the structural approach.
Perfect competition is at the other extreme from a pure monopoly, which is a form of imperfect competition. In the condition of a monopoly, the sole participant has great market power and can influence the price. The monopolist fix the highest possible price according to the structure of his costs and the demand curve. Thus he obtains a high level of economic profit which is determined only by his
unique position as the only supplier in the market, and does not depend on the effectiveness of use of resources. This structure constitutes the least effective kind of market mechanism. "In fact when the production of a commodity conforms to the Low of Increasing Return in such a way as to give a very great advantage to large producers, it is apt to fall almost entirely into the hands of a few large firms; ... The production of such a commodity really partakes in a great measure of the nature of the monopoly; and its price is likely to be so much influenced by the incidents of the campaign between rival producers, each struggling for an extension of the territory, that no free play is allowed to the normal action of economic forces, and it can scarcely be said to have a normal supply price" [3, p.524].
There are several other kinds of imperfect competition in the continuum between perfect competition and pure monopoly: monopolistic competition, oligopoly, monopsony. The theories of imperfect competition were developed by E. Chamberlin, G. Robinson, A. Cournot, W. Jevons and other authors as alternatives to the ideal model of perfect competition, as the growth of monopolization and market regulation showed that it did not match the economic reality.
According to the structural conception of competition, its effecti
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