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23. Modern views on inter-industry competition
During the intersectoral competition there is a migration of capital from one industry to another in pursuit of the highest rate of profit. New capital helps to expand production and increase the supply of goods. On this basis, prices begin to fall. As a result, the rate of profit falls. The opposite result is the flight of capital from low-profit industries: here the volume of production decreases, the demand for goods begins to exceed their supply, as a result of which the price rises, and with it the rate of profit rises. As a result, intersectoral competition objectively creates a dynamic equilibrium that ensures equal profit on equal capital, regardless of where it is invested. It also stimulates scientific and technological progress (STP).
Interindustry competition - rivalry between enterprises of various industries for a large profitable investment of capital in a particular industry. Competitiveness arises because in different types of production, unequal profits are initially formed on equal capital. Due to differences in the structure of capital (unequal share of labor costs) and the speed of its turnover, three groups of industries are distinguished - with low, medium and high profit margins.
Under free competition, the entrepreneurs of those types of production in which the profitability is the lowest withdraw their investments and place them where the rate of profit is higher. The massive transfer of capital (and with it labor) from less profitable industries to more profitable ones introduces significant changes in the relationship between the supply of goods and the demand for them, which leads to a deviation of market prices from value.
Thus, the outflow of capital from low-income industries leads to a reduction in the size of production in them, as a result of which the supply of goods on the market decreases. With stable demand, this leads to the fact that the prices of products rise above their value and the rate of profit rises. As a result, industries that could have died are getting a "second wind".
In a highly profitable industry, as a result of a large influx of new capital, the output of products increases and their supply begins to exceed demand. Prices then fall below value, and the rate of profit falls.
If there were no inter-industry competition and the flow of capital from one industry to another, then vital types of production (with a low level of profitability) could perish, while others (highly profitable) would expand excessively.
Author: Ilyina V.N.
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