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Posted on April 20th, 2012, by

The modern economy is predominantly an open market economy, which functions in accordance with principles and norms of the open market. In actuality, the most developed countries of the world have implemented the open market economy model and they have proved its efficiency. However, even the most developed countries can hardly avoid flaws of the unfair market competition. What is meant here is the fact that there is no ideal, competitive market since the natural development of the market inevitably leads to attempts of some companies to violate principles of fair competition. In addition, there are companies that naturally occupy a monopolistic position in the market that create unfavorable conditions for the development of certain industries and prevent the normal development of a perfectly competitive market. In such a context, a perfectly competitive market is rather an unattainable ideal than a really existing market. Nevertheless, a truly competitive market is an essential condition of the normal development of the national economy. Hence, it is possible to view a perfectly competitive market as a model which modern markets should strive to meet.

On analyzing the essence of a perfectly competitive market, it should be said that this market should have all the characteristics of an open market, where all competitors are in more or less equal position and have equal opportunities and it is only their internal possibilities to realize their competitive potential that define their position in the market. In other words, ideally, all rivals should be in equal position and operate in accordance to rules and norms which are equal to all players. At the same time, it is obvious that each company has a different internal potential, for instance, different potential of its human resources (Gitlow, 156). Naturally, this difference can influence their competitive position in the market because some companies can accelerate their development and take an advantageous position in the market, for instance, due to the more productive work of its employees who have larger potential than competitors.

On the other hand, it is necessary to understand that the perfectly competitive market is comprised not only of companies which operate in accordance with equal rules and norms. In this respect, it is necessary to take into consideration the current situation in the market and the position of customers. To put it more precisely, the market is normally regulated by the balance of supply and demand, which defines the development of the market and the competition within the market. Obviously, supply and demand are closely intertwined and they are probably the most important factors that influence the development of the market. At this point, it should be said that the supply naturally depends on the demand because the demand stimulates the supply. In other words, the growing demand stimulates companies to produce more commodities or services to supply to customers. In contrast, the decreasing demand leads to the crisis of the overproduction because companies that produce commodities or services cannot sell them to customers who do not need these commodities or services anymore. In such a situation, those companies that manage to react faster on the fluctuations of demand can be more successful and they can take an advantageous competitive position because if they decrease the production in response to the decrease of demand faster than other companies, they can benefit from it because they will not have the problem of overproduction or stocking their products without the possibility to sell them. Although, it is worth mentioning the fact that, in the contemporary business environment, the demand can be created artificially. For instance, the introduction of a new product, which is promoted effectively, can provoke huge demand.

Naturally, the changes in supply and demand affect the price and the situation in the competitive market consistently. In this respect, it should be said that companies in a perfectly competitive market are mainly oriented on the supply and demand to determine the equilibrium of price to keep customers buying commodities and services produced by companies to maintain the stable level of production adequate to the level of consumption (Sharpe, 433). At the same time, it is important to understand that the change of supply or demand can influence the price consistently. For instance, the decrease of supply of some product or service leads to the deficit of this product or service in the market that provokes the growing demand on it. In such a situation, companies can naturally increase the price to maximize their profits and decrease the demand because the higher price naturally decreases the number of customers who can afford paying it. In contrast, the decrease of demand leads to the excessive supply of products or services which customers do not need. In such a situation, companies are forced to decrease price to sell out their products or services.

However, rapid changes of supply and demand and, therefore, rapid changes of price are  undesirable in a perfectly competitive market because the changes can have a destructive impact on the competition as some companies can be ruined, while other can gain the dominant position in the market (Pine and Gilmore,, 241). Ideally, a perfectly competitive market should admit only the short run break even price to revive the market and either to stimulate or to decrease the demand and sale rates, while as the situation in the market is stable companies normally shut down the price.

In such a way, a perfectly competitive market is apparently ideal. It is based on the fair competition and equal opportunities to all companies along with the stability of supply and demand as well as the stability of prices. In such a situation, the market can develop steadily without dramatic and destructing changes which can misbalance the competition in the market. At the same time, it should be said that in the real life such a situation can hardly be achieved because it is very difficult to keep the market balanced and profound economic crises that strike periodically world economies prove the improbability of the existence of a perfectly competitive market.

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