Concept of competitiveness and competition, models. Russia’s endowment. Engendered structural dominance and performance. The state of Russian competitiveness according to the Global Competitiveness Index. Place in the world, main growth in detail.
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How competitive is Russian economy?



Introduction

The Russian economy has been studied by numerous international organizations, academics, and other analysts. And consequently there are strongly divergent views about the state of Russian competitiveness. Strong economic growth, fiscal surpluses, and reforms in some areas of the business environment are compared with huge continuing challenges in doing business in Russia as well as rising government intervention in the market, especially in energy. This mixed evidence has been interpreted very differently. Within Russia (including many foreign companies operating in the country), there is optimism about the progress of the nation's economy. Outside of Russia, there is deep scepticism about whether the current economic success of Russia extends beyond high oil prices, and whether the increasing concentration of economic (and political) power in the central government has changed the course of Russia's reforms for the worse. There is some truth in each of these perspectives, but a deeper analysis is needed to truly understand where Russia stands and to guide future policy.

In this coursework it will be proved that modern Russia has no inherent reason for not entering a period of high and sustained growth and that it can join the ranks of the most competitive economies in the world in the near future.

The coursework is organized in three sections. First, the assessment of Russia's current competitiveness is presented, highlighting the roles of the country's legacy, its broad economic context, microeconomic conditions, and current market structure. Second, the evaluation of Russia's economic performance on micro level is introduced with description of current market structure's effect on business environment. This part also introduces overall performance assessment. Third, the competitiveness of Russian economy on the global arena is presented and broadly evaluated.



1. Theoretical background to the market structure and competition

1.1 Concept of competitiveness and competition

endowment russian economy

Competitiveness can be defined at the firm level, the industry level, and the national level. At the firm level, competitiveness is the ability to provide products and services more effectively and efficiently than relevant competitors. This includes sustained success in international markets without protection or subsidies.

At the industry level, competitiveness is the ability of the nation's firms to achieve sustained success versus foreign competitors, without protection or subsidies.

At the national level, competitiveness means the citizens' ability to achieve a high, and constantly rising, standard of living. In most countries, the standard of living is determined by productivity, which deploys national resources and the output of the economy per unit of labour and/or capital employed.

Competition in economics is the rivalry between two or more businesses to gain as much of the total market sales or customer acceptance as possible. It helps to maintain reasonable prices, provides consumers with new and improved products, forces businesses to operate efficiently and results in a wide selection of products from which to choose.

Competition was described by Adam Smith in The Wealth of Nations (1776) and later economists as allocating productive resources to their most highly-valued uses and encouraging efficiency. Smith and other classical economists before Cournot were referring to price and non-price rivalry among producers to sell their goods on best terms by bidding of buyers, not necessarily to a large number of sellers nor to a market in final equilibrium.

Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that no system of resource allocation is more Pareto efficient than perfect competition. Competition, according to the theory, causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater selection typically causes lower prices for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly).

1.2 Models of Competition

Economists classify markets according to conditions that prevail in them. They determine market structure, or the nature and degree of competition among firms operating in the same market. Economists have names for these different market structures. They are Pure Competition, Monopolistic Competition, Monopoly and Oligopoly.

Pure Competition

Pure competition is a market scenario that includes a large number of autonomous and knowledgeable buyers and sellers of an identical product. Yet none of which are capable of influencing the price. There are five major conditions, which characterize purely competitive markets.

1. There are a large number of buyers and sellers. No single buyer or seller is large enough or powerful enough to affect the price of the product.

2. Buyers and sellers deal with identical products. Therefore buyers do not prefer one seller's merchandise over another's because there is no brand names, and no need to advertise.

3. Each buyer and seller acts autonomously, there must be no collusion. If such a situation occurs, sellers would compete against one another for the consumer's dollar. Buyers also compete against each other and against the seller to obtain the best price.

4. The buyers and sellers are knowledgeable about the items for sale. Because all products are exactly the same, customers would have little reason to remain loyal to one seller.

5. The buyers and sellers are free to get into, conduct, and get out of business; thus making it difficult for a single producer to keep the market just to itself.

Monopolistic Competition

Since we live in a society where the five elements of pure competition are not available to us, then we are clearly operating in a state other than pure competition. Instead we operate under a different model of competition known as monopolistic competition. Any time the elements of pure competition are not met the existing model is monopolistic competition.

The fundamental difference between a pure competitor and a monopolistic competitor is that the latter refrains from selling identical products. By employing product differentiation, the monopolistic competitor is trying to establish a comparison between its product and another competitor's product.

Oligopoly - a few large sellers dominate and have the ability to affect prices in the industry. Because of the fact that in an oligopoly there are very few firms, whenever one firm does something, the others follow suit. Since all the firms have considerable power and influence, firms tend to act together. There are times when the interdependent behaviour of the firms results in a formal agreement to set prices; this is termed «collusion». Price-fixing, a type of collusion, is the action taken by an oligopoly to charge the same or similar prices for a product. The firms must also agree to divide the market so that each is guaranteed to sell a certain amount. Yet collusion is against the law because it restrains trade. Price wars are also common in oligopolies. When one firm lowers prices, it leads to a series of price cuts by all producers that may lead to unusually low prices in the industry. Raising prices is also risky unless the firm knows that rivals will follow suit. Otherwise, the higher priced firm will lose out on sales. An example might be Coca Cola and Pepsi which dominate the soft drink market.

Pure Monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. Thus, the main characteristics of monopoly include profit maximizing orientation; a monopolistic enterprise decides the price of the good or product to be sold; there are tough barriers to entry - other sellers are unable to enter the market of the monopoly. As in a monopoly there is one seller of the good which produces all the output, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry. A monopolist can change the price and quality of the product. He sells more quantities charging fewer prices for the product in a very elastic market and sells less quantities charging high price in a less elastic market.

1.3 Russia's endowment

Russia faces complex endowments that create unusual challenges for competitiveness. These challenges-some of them unique to Russia given its recent history while others which are typical for many countries at this stage of development-must be confronted head on in economic strategy. Otherwise the performance of the country will remain below its potential and the political sustainability of economic reforms will suffer.

Legacy

Russia's history...