Competition (economics)

The level of competition that exists within the market is dependent on a variety of factors both on the firm/ seller side; the number of firms, barriers to entry, information, and availability/ accessibility of resources.

[citation needed] According to 19th century economist Antoine Augustin Cournot, the definition of competition is the situation in which price does not vary with quantity, or in which the demand curve facing the firm is horizontal.

This result reflects the fact that firms are embedded in inter-firm relationships with networks of suppliers, buyers and even competitors that help them to gain competitive advantages in the sale of its products and services.

An oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns.

Companies in an oligopoly benefit from price-fixing, setting prices collectively, or under the direction of one firm in the bunch, rather than relying on free-market forces to do so.

[15] The main goal of effective competition is to give competing firms the incentive to discover more efficient forms of production and to find out what consumers want so they are able to have specific areas to focus on.

[19] Competition is generally accepted as an essential component of markets, and results from scarcity—there is never enough to satisfy all conceivable human wants—and occurs "when people strive to meet the criteria that are being used to determine who gets what."

[24] Competition bolsters product differentiation as businesses try to innovate and entice consumers to gain a higher market share and increase profit.

[25] In his 1776 The Wealth of Nations, Adam Smith described it as the exercise of allocating productive resources to their most highly valued uses and encouraging efficiency, an explanation that quickly found support among liberal economists opposing the monopolistic practices of mercantilism, the dominant economic philosophy of the time.

[26][27] 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.

In such markets, the theory of the second best proves that, even if one optimality condition in an economic model cannot be satisfied, the next-best solution can be achieved by changing other variables away from otherwise-optimal values.

In a small number of goods and services, the resulting cost structure means that producing enough firms to effect competition may itself be inefficient.

[33] Economic competition between countries (nations, states) as a political-economic concept emerged in trade and policy discussions in the last decades of the 20th century.

Commercial policy can be used to establish unilaterally and multilaterally negotiated rule of law agreements protecting fair and open global markets.

While commercial policy is important to the economic success of nations, competitiveness embodies the need to address all aspects affecting the production of goods that will be successful in the global market, including but not limited to managerial decision making, labor, capital, and transportation costs, reinvestment decisions, the acquisition and availability of human capital, export promotion and financing, and increasing labor productivity.

"[36] Advocates for policies that focus on increasing competition argue that enacting only protectionist measures can cause atrophy of domestic industry by insulating them from global forces.

[37] As global trade expanded after the early 1980s recession, some American industries, such as the steel and automobile sectors, which had long thrived in a large domestic market, were increasingly exposed to foreign competition.

Simultaneously, domestic anti-inflationary measures (e.g. higher interest rates set by the Federal Reserve) led to a 65% increase in the exchange value of the US dollar in the early 1980s.

[38] American producers, particularly manufacturers, struggled to compete both overseas and in the US marketplace, prompting calls for new legislation to protect domestic industries.

Added to these pressures was the import injury inflicted by low cost, sometimes more efficient foreign producers, whose prices were further suppressed in the American market by the high dollar.

[42] The injury caused by imports strengthened by the high dollar value resulted in job loss in the manufacturing sector, lower living standards, which put pressure on Congress and the Reagan Administration to implement protectionist measures.

These measures include increasing investment in innovative technology, development of human capital through worker education and training, and reducing costs of energy and other production inputs.

That year, 1994, also saw the installment of the North American Free Trade Agreement (NAFTA), which opened markets across the United States, Canada, and Mexico.

Ireland (1997), Saudi Arabia (2000), Greece (2003), Croatia (2004), Bahrain (2005), the Philippines (2006), Guyana, the Dominican Republic and Spain (2011) [51] are just some examples of countries that have advisory bodies or special government agencies that tackle competition issues.

From the outset, the program must provide a clear diagnostic of the problems facing the economy and a compelling vision that appeals to a broad set of actors who are willing to seek change and implement an outward-oriented growth strategy.

The Socrates Team headed by Michael Sekora, a physicist, built an all-source intelligence system to research all competition of mankind from the beginning of time.

[62] Some development economists believe that a sizable part of Western Europe has now fallen behind the most dynamic amongst Asia's emerging nations, notably because the latter adopted policies more propitious to long-term investments: "Successful countries such as Singapore, Indonesia and South Korea still remember the harsh adjustment mechanisms imposed abruptly upon them by the IMF and World Bank during the 1997–1998 'Asian Crisis' […] What they have achieved in the past 10 years is all the more remarkable: they have quietly abandoned the "Washington consensus" [the dominant Neoclassical perspective] by investing massively in infrastructure projects […] this pragmatic approach proved to be very successful.

Trade competition can be defined as the ability of a firm, industry, city, state or country, to export more in value added terms than it imports.

The simple concept of trade competitiveness index (TCI) can be a powerful tool for setting targets, detecting patterns and can also help with diagnosing causes across levels.

[69] As Krugman puts it in his crisp, aggressive style "So if you hear someone say something along the lines of 'America needs higher productivity so that it can compete in today's global economy', never mind who he is, or how plausible he sounds.