Competition in the market economy is playingdefining role, and this role was generalized by A. Smith in his principle of the "invisible hand." According to this principle, each separate subject of entrepreneurship, seeking profit for themselves, regardless of their own will and consciousness, is guided by the so-called "invisible hand" of the market to achieve benefits and benefits for society as a whole.
As the income of commodity producers directlydepends on how satisfied the interests of consumers, there is competition in the economy for that limited effective demand, which is available in this market segment. And the totality of all commodity producers, allegedly managed by the "invisible hand", according to their own free will and effectively embodies all the interests of society, without even realizing it. After all, competition in the economy creates the conditions under which people produce what they know, those who are able to produce better or cheaper than others, and sell at a price lower than one that could be assigned by someone from those , who does not produce this product.
The very word "competition" means:
1) From the Latin word concurrencia, which translates as "collide" - rivalry for the most effective use of natural and human resources.
2) The struggle for the affordable volume of goods that can be paid for consumer demand, which is conducted on all those market segments available to these firms.
3) Competition in the economy - a counterbalance to individualism in it.
The methods of competition are more moderntechnology, variety of assortment, service, more selling advertising, higher quality of goods, lower prices. The subjects of the economy are firms, and the object is the volume of limited effective demand.
Competition in the economy depends on the growth rate of demand, the use of new competitive methods of struggle, increasing the number of participants in the game. It promotes the evolution of the market economy.
What it performs the functions:
1) Comparative.Competition in the economy is a universal tool for comparing the efficiency of production by different firms of the same product. Firms whose production costs exceed market prices for this type of product become bankrupt. And those who have less - make a profit. In the case when the costs are equal to the market price, only the costs of resources are reimbursed, but there is still time to change the situation for the better.
2) Regulation.In order to withstand competition, the firm must produce those goods that are currently in demand in the market, and therefore, resources are redirected to those industries whose product is most in demand at the moment.
3) Motivation. Companies that offer better products or at a lower price get a profit, and those that can not provide a decent quality or price - are out of the game.
4) Innovation. In the course of competitive struggle, the one with the most diverse and high-quality goods will win, which means that it makes sense to introduce various innovations.
5) Control. The economic power of any firm is controlled by competition. The economy of the country, following the market path, is developing due to natural selection among market participants.
6) Optimization.It ensures the receipt of the maximum level of utility for the consumer and the maximum level of profit for the producer, which means that in the market it forms a state of stable social optimum.
But competition has a negative impact:
1) It increases spontaneity and undermines stability.
2) There is a risk of creating on the basis of the mostsuccessful monopoly firms that will be able to control not only the economic situation, but also over time, political, that is, to form the institution of the oligarchy.
Therefore, for the stability and prosperity of societya system of market economy is necessary, but with strict control by the state, the best example is the Chinese economic miracle, where free competition, but public executions for corruption, as an attempt to build oligarchic structures.