11. Competition in a self-regulating market

Competition, with all its positive and negative sides, is an important element of the market self-regulation mechanism.

According to Friedrich von Hayek (1899-1988), competition through the price mechanism informs market participants about the opportunities that they can use to effectively use the limited resources that society has.

A market economy has two main advantages:

1) it uses the knowledge of all market participants;

2) the market serves the private goals of individuals in all their diversity, although "it does not guarantee the obligatory satisfaction of first more important ... needs, and then less important ones. This is the main reason why people object to the market."

The role of competition is that thanks to it, a spontaneous order arises and is maintained in the market, which does not depend on anyone's will, desire and intention. By F. Hayek such an order is reduced to the mutual adaptation of individual plans and is carried out according to the principle that we, following the natural sciences, which also turned to the study of spontaneous orders (or self-organizing systems), began to call negative feedback.

This principle explains the process of establishing a stable market price. When the demand for goods exceeds supply, i.e., there is a shortage, then the price of them increases. On the contrary, if the supply exceeds the demand, then the price of them falls. Consequently, the market is a self-organizing or self-regulating system.

It is more correct to characterize the market in the way F. Hayek, namely as a complex highly organized structure where the process of unconscious self-organization occurs.

It cannot be considered a completely self-organizing system that can be launched and then it will work without interruptions. On the contrary, after Great Depression 1929-1933 economists recognized the need for state regulation of the market during recessions and crises.

Speaking about the advantages of competition and the market as a whole, one should not forget about their negative aspects, as well as those problems that they cannot solve by their nature. Competition sometimes leads to disproportions between supply and demand, a slowdown in technical progress, and, consequently, the irrational use of society's limited resources.

Competition cannot be free and perfect, and this has a negative impact on the mechanism of formation of market prices. The concept of a free market and perfect, unrestricted competition gives an idea of ​​the real market.

Author: Ilyina V.N.

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