Competition is an economic term. Derived from the Latin word "concurrentia", which can be translated as "collision, escape." The meaning of this term describes the process of struggle between market players for resources: territory of influence, low prices for raw materials, market share, exclusive terms of delivery and others.
Competition as an engine of progress
Competition, according to economists, has a positive impact on the overall market situation. Thanks to constant struggle and rivalry, new technologies appear that are the engines of scientific and technological progress. Competition affects the improvement of the quality of goods and services, helps optimize the price conditions for the consumer and increase the level of service in customer service.
Karl Marx in his writings wrote that the struggle for resources is divided into two types: intra-industry and inter-industry competition. What is it?
Let us consider these types of competition in more detail. Intra-industry and inter-industry competition - what are the differences between them and common features?
The concept of intra-industry competition
Intra-industry competition is competition between companies that produce identical goods and services. Let's get it right. What are the positive effects of intra-industry competition?
In intra-industry competition, as a rule, enterprises of small, medium, and often large enterprises compete. The exception is large companies, which account for one third to half of the entire market in a particular territory or industry. In intra-industry competition, they do not participate as unnecessary, being monopolists capable of dictating market conditions.
Intra-industry competition contributes to the industry moving forward and developing technology and increasing quality.
Types of intra-industry competition
Intra-industry competition is divided into two types: price and non-price.
Price competition is an attempt to gain consumer attention and increase market share by reducing the cost of goods and services. In principle, price competition is beneficial for consumers, but only up to a point. The fact is that at first manufacturers reduce the cost of the product at the expense of profit, while maintaining quality and a customer-oriented approach. But in the event of the so-called “price war” in the industry, one has to compete by cutting production costs. And it may come to a forced decline in quality, for example, through the purchase of cheaper raw materials. Not to mention the optimization of costs for providing sales and service. In this case, competition undermines the market, weakens participants and makes consumers feel uncomfortable. Some companies that understand the situation and the laws of the market do not consciously enter the competition in the event of a price war and win this battle without a fight.
Non-price intra-industry competition is the struggle for the buyer by changing the image of the company, packaging, attitude to customers - all factors of the detuning from competitors, except for the price. In the struggle for attention and customer loyalty, companies invest heavily in brand development, advertising, promoting a product or service on the market, and marketing. This is effective, but leads to an increase in the cost of attracting each customer. To break away from competitors, companies have to bear significant unproductive costs.In this regard, the net profit of each individual company is significantly reduced.
Examples of Intra-Industry Competition
Intra-industry competition between Russia and the world can be illustrated by almost any sector of the economy: both material production (light and heavy industry) and socio-cultural sectors (education, medicine).
Intra-industry competition examples include:
Dairy products: Izbenka, Wimm-Bill-Dann, Danone, Permmoloko.
Cargo transportation: "Business Lines", LCMG, "Translogistic", "PEC", "Zheldoravtotrans".
Education MBA: Moscow State University Lomonosov, RANEPA, VSBB GUU, EMAS.
Intersectoral competition
Intersectoral competition, as a rule, arises when the possibilities of intra-industry competition are depleted. In fact, this is a transition to related industries, business diversification through the exploitation of a brand or the production of new products.
The subject of struggle in this form of competition is a higher rate of return. What does cross-industry competition affect? The fact is that entrepreneurs leave unprofitable niches and rush into more profitable businesses. This process is accompanied by a decrease in supply in unprofitable areas while maintaining demand - as a result, the rate of profit rises. In industries with high profits, on the contrary, an increase in supply leads to a decrease in the rate of profit and a drop in prices for goods and services.
In intersectoral competition, two types are distinguished: functional and capital overflows.
Types of Intersectoral Competition
The overflow of capital is designed to regulate the balance of the rate of profit in all sectors. But in practice, several factors hinder this, they are called barriers. Separate entry barriers and exit barriers. Barriers to entry include: licensing, expensive equipment, the absence in the constituent documents of the company of the right to engage in another type of activity, expensive marketing and significant investments in advertising campaigns. Exit barriers are union resistance, reputational risks, production costs.
The higher the entry threshold, the lower the chances of a change in the composition of market players. Overflow of capital can be external and internal. External is the entry into the industry of a new company, internal is the diversification of the business by one of the existing players.
Functional competition is the emergence of substitute products or services that compete with existing in the industry today and satisfy the needs of consumers in the industry, offering an alternative solution. The consumer himself chooses which drink to prefer - tea or coffee, take the bus or metro, send a letter by mail or by courier. All these are examples of functional intersectoral competition. Substitutes (the so-called substitute products and services) exacerbate intersectoral competition, set the pace for the market, confuse strategic plans and force top managers to come up with new ways to develop their business.