With fair and vigorous competition, businesses must produce and sell the products consumers want, and offer them at prices they are willing to pay. This means that in a competitive market, the consumer holds the power. When there is limited competition and consumer choice, businesses can dictate their terms. This can lead to businesses offering products and services that are too expensive, of low quality, or lacking features that consumers want.
Without competition, consumers must accept these inferior products and services, or go without. However, when businesses operate in a healthy competitive market, consumers get to choose the best option available to meet their needs and price point. Fair competition means that businesses must make a strong case to each consumer, and convince them that their products or services are the superior choice.
This translates to more and better products and services that meet the diverse range of consumer tastes. New services offered by major retailers To win over new territories and consumers, major retailers are rethinking their business models. In the search for new ways of driving growth, brands are working to take advantage of stores and the internet by developing new services and increasingly personalised customer experiences.
They can also use customer collection Drive for supermarket shopping, to save time. Innovation - competitiveness - growth: the virtuous circle of competition Competition means constant stimulation For established companies, economic competition is an incentive to keep innovating and improve their productivity so they remain efficient and effective and can stay in the race to continue attracting consumers.
Competition policy as a safeguard against deviant behaviour Fighting anticompetitive practices is not just a boon to consumers. New economic models: an opportunity for our economy Competition ensures market access for both businesses and consumers In most sectors, opening up or strengthening competition, with the rapid emergence of new players, leads to a significant reduction in the prices offered to consumers.
Opening up coach transport: positive effects on growth and jobs The opening up of passenger coach transport in France is a good example of how this works. New demand emerged from people who are more sensitive to price than to travel time, such as young people and the elderly. This growth in demand stimulated the economy upstream — for example in coach construction and driver training — but also downstream through spillover effects in the catering, accommodation and tourism sectors, etc.
In a nutshell, it led to growth and employment. Revitalization of existing players The price reduction brought about by competition is not limited solely to new entrants but extends to the whole market. Low-cost flights: the model that revolutionised a whole sector The emergence in a sector of a new business model reshuffles the pack and prompts incumbents to review their strategies. The arrival of a low-cost offer within a market generally encourages traditional players to reposition their offer either on premium or on low cost: for example, in the aviation sector, the arrival of EasyJet and Ryanair prompted Air France to launch the Transavia and Hop brands to complete its range.
Would-be entrepreneurs never even attempt to bring their ideas to market; their fate has already been sealed. Market competition provides the fertile soil in which entrepreneurs can flourish. When entrepreneurs are allowed to take risks, innovate, create whole new products and services, challenge the status quo, and receive monetary compensation for doing so then entire nations will enjoy the fruits of wealth creation.
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Market Competition. The Entrepreneurial Spirit. Competition helps bring out everybody's potential And it doesn't matter what level of society; even the poor people have that energy, deserve that freedom where they can be able to compete with the rest and do the best they can. Overview In order for the entrepreneurial spirit to thrive within a country, there must be true, market competition.
Market Competition: Pros. Market Competition: Cons. With competitive markets there is great risk but there is also great reward. Tipping the Scales. Why Try? Second, governmental or private restraints can raise exit costs and inhibit innovation. Competitors, challenged by new rivals or new forms of competition, may turn to regulators for help. Competitors may ask governmental agencies under the guise of consumer protection to prohibit or restrict certain pro-competitive activity, such as discounts to their clients.
They may enlist the government to increase trade barriers or for other protectionist measures. Finally, impeding competition can cause significant anti-democratic outcomes, like concentrated economic and political power, political instability, and corruption. As the previous section discusses, competition, given its virtues, is the backbone of US economic policy. But competition, while often praised, is also criticized. Life would be more stressful if we competed for everything. Competition cannot always be preferred over cooperation.
Cooperation is often more appealing and socially rewarding. Social and religious norms exclude or curtail competition in many daily settings. Commuting to work, in theory, is not a competitive sport. Parents should not foster competition among their children for their affection. Nor do the mainstream religions endorse a deity who wants people to compete for His love.
Antitrust norms do not translate easily in these social or religious settings. Some goods and services are not subject to market competition. One example is human organs. This is not fixed. Markets once considered repugnant eg lending money for interest, life insurance for adults are no longer.
Markets that are repugnant today eg slavery , once were not. The US antitrust laws apply across most industries and to nearly all forms of business organizations. But the Court noted: Surely it cannot be said … that competition is of itself a national policy.
To do so would disregard not only those areas of economic activity so long committed to government monopoly as no longer to be thought open to competition, such as the post office, cf. It would most strikingly disregard areas where policy has shifted from one of prohibiting restraints on competition to one of providing relief from the rigors of competition, as has been true of railroads. Some or all economic activity in various industries is expressly immunized from antitrust liability.
Economic activity, even if not immunized, may fall outside the scope of the antitrust law. But Sherman did not see: any reason for putting in temperance societies any more than churches or school-houses or any other kind of moral or educational associations that may be organized.
Such an association is not in any sense a combination arrangement made to interfere with interstate commerce. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition. The law of unfair competition has developed as a kind of Marquis of Queensbury code for competitive infighting. The antitrust community would debate over what constitutes fair and unfair methods of competition, but agree that not all methods of competition are desirable.
The community would likely tolerate price and service regulations in some industries eg natural monopolies where competition is not feasible. For most other commercial activity, however, competition on the merits is the presumed policy. As one American court observed: The Sherman Act, embodying as it does a preference for competition, has been since its enactment almost an economic constitution for our complex national economy.
A fair approach in the accommodation between the seemingly disparate goals of regulation and competition should be to assume that competition, and thus antitrust law, does operate unless clearly displaced. In condemning private and public anti-competitive restraints, competition officials and courts invariably prescribe competition as the cure.
But that is a function of market conditions, not competition itself. Competition itself cannot cause market failures. Economist Irving Fisher over a century ago examined two assumptions of any laissez-faire doctrine: first, each individual is the best judge of what subserves his own interest, and the motive of self-interest leads him to secure the maximum of well-being for himself; and, secondly, since society is merely the sum of individuals, the effort of each to secure the maximum of well-being for himself has as its necessary effect to secure thereby also the maximum of well-being for society as a whole.
Competition policy typically assumes that market participants can best judge what subserves their interests. Suboptimal competition can arise when firms compete in fostering and exploiting demand-driven biases or imperfect willpower. To illustrate, suppose many consumers share certain biases and limited willpower.
Competition benefits society when firms compete to help consumers obtain or find solutions for their bounded rationality and willpower. Providing this information is another facet of competition—trust us, we will not exploit you. The credit card industry provides one example. Some consumers do not understand the complex, opaque ways late fees and interest rates are calculated, and are overoptimistic on their ability and willpower to timely pay off the credit card purchases.
For other credit card competitors, exploiting consumer biases makes more sense than incurring the costs to debias. Alternatively, the debiased consumers do not remain with the helpful credit card company. Instead they switch to the remaining exploiting credit card firms, where they, along with the other sophisticated customers, benefit from the exploitation such as getting airline miles for their purchases, while not incurring any late fees.
This problem, of course, can arise under oligopolies or monopolies. But here entry and greater competition, as one recent survey found, can worsen, rather than improve, the situation: The most striking result of the literature so far is that increasing competition through fostering entry of more firms may not on its own always improve outcomes for consumers. Indeed competition may not help when there are at least some consumers who do not search properly or have difficulties judging quality and prices … In the presence of such consumers it is no longer clear that firms necessarily have an incentive to compete by offering better deals.
Rather, they can focus on exploiting biased consumers who are very likely to purchase from them regardless of price and quality. These effects can be made worse through firms' deliberate attempts to make price comparisons and search harder through complex pricing, shrouding, etc and obscure product quality.
The incentives to engage in such activities become more intense when there are more competitors. Second, after identifying these consumers, firms must be able to exploit them. But firms, like consumers, are also susceptible to biases and heuristics.
In competitive settings—such as auctions and bidding wars—overconfidence and passion may trump reason, leading participants to overpay for the purchased assets. If repeated biased decision-making is not punished, the problem is too little, rather than too much, competition. Given the cost of losing, it is also illogical to enter a bidding war. But if everyone believes this, no one bids—also illogical. If only one person bids, that person gets a bargain. Once multiple bidders emerge, the second highest bidder fears having to pay and escalates the commitment.
Bazerman and Moore analogize their experiment to merger contests. Competitors A and B, in their example, fear being competitively disadvantaged if the other acquires cheaply Company C, a key supplier or buyer. Firms A and B may rationally decide to enter the bidding contest.
Both are better off if the other cannot acquire Company C, nonetheless neither can afford the other to acquire the firm. Here clear antitrust standards can benefit the competitors. If they both know they cannot acquire Company C under the antitrust laws, neither will bid. Antitrust, while not always preventing the competitive escalation paradigm, can prevent overbidding in highly concentrated industries where market forces cannot punish firms that overbid.
Suppose the first assumption Fisher identifies is satisfied—people aptly judge what serves their interest, which leads them to maximize their well-being. One avoids the problem of behavioral exploitation and perhaps the competitive escalation paradigm.
Competition benefits society when individual and group interests and incentives are aligned or at least do not conflict. Difficulties arise when individual interests and group interests diverge. One area of suboptimal competition is where advantages and disadvantages are relative. Hockey players are another example. Hockey players prefer wearing helmets.
But to secure a relative competitive advantage, one player chooses to play without a helmet.
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