Competition (economics)
Rivalry among firms to obtain limited goods by varying price, product, promotion, and place.
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Competitiveness refers to the ability of a firm, sub-sector, or country to sell goods relative to others in the same market.[1] In economic theory, rivalry among firms for scarce resources involves adjusting the four components of the marketing mix: price, product, promotion, and place.[2]
Key facts and history
Adam Smith in 1776 described competition as allocating productive resources to their most valued uses and encouraging efficiency.[3] Nineteenth-century economist Antoine Augustin Cournot defined competition as a situation where price does not vary with quantity.[4] Neoclassical economic theory emphasizes a theoretical market state called perfect competition, which is rarely observed in reality.[5] Perfect competition requires many small firms selling identical products, complete information, and free entry and exit.[5]
Monopoly is the opposite of perfect competition, with one firm holding the entire market share.[6] Oligopoly involves a small number of firms that may collude to restrict output or fix prices.[7] Competition is generally accepted as an essential component of markets, resulting from scarcity.[8] Real-world markets are characterized by imperfect competition, where purchasers may lack full product information and businesses independently determine their selling prices.[9]
An industry where numerous companies sell products that are alike but not perfect substitutes blends features of both monopoly and perfect competition, a structure known as monopolistic competition.[10] According to an OECD factsheet, competition serves as a strong indicator of how much productivity grows within national economies.[11]
What the cited sources add
The "Dominant Firm" account from econpage.com notes that a dominant firm serves a majority of the market while smaller fringe firms supply the rest.[12] That same source explains that a dominant firm faces the problem that a price increase may induce customers to buy from fringe competitors.[12] The Economics Online source also notes that oligopolists may be free to manipulate consumer decision making given the lack of competition.[13] The econpage.com model predicts movements in price and market share for industries like auto or steel where a dominant firm faces competition from smaller entrants.[12]
Krylovskiy's 2020 article "Oligopoly" explains that behavior resembling a cartel diminishes competitive forces, often resulting in elevated prices and diminished output.[13]
References
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Lawrence, "Competitiveness", Library of Economics and Liberty, 2002 (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: This article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the sam (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Lanny Ebenstein, 2015. Chicagonomics: The Evolution of Chicago Free Market Economics Macmillan, pp. 13–17, 107.; George J. Stigler, 2008. ([1987] 2008,. "competition," The New Palgrave Dictionary of Economics. Abstract.; Mark Blaug, 2008. "invisible hand," The New Palgrave Dictionary of Economics, 2nd Edition, v. 4, p. 565. Abstract. (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Stigler, "Competition", The New Palgrave Dictionary of Economics, 2008, p. 1–9 (we also read that source) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Hayes, "Understanding Perfect Competition", Investopedia (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: McNulty, "Economic Theory and the Meaning of Competition", The Quarterly Journal of Economics, 1968, p. 639–656 (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Investopedia Staff, "Oligopoly", Investopedia (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Heyne, "The Economic Way of Thinking", Pearson, 2014, p. 102–06 (we also read that source) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Liberto, "Imperfect Competition Definition", Investopedia; Kenton, "Imperfect Market: An Inside Look", Investopedia; Liberto, "Imperfect Competition Definition", Investopedia (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: Investopedia Staff, "Monopolistic Competition Definition", Investopedia (original not read by us) en.wikipedia.org
- Wikipedia, "Competition (economics)" (CC BY-SA 4.0), which cites: OECD. Factsheet on how competition policy affects macro-economic outcomes. (original not read by us) en.wikipedia.org
- "Dominant Firm", econpage.com. facts only, no text reused. econpage.com
- Krylovskiy, "Oligopoly", Economics Online, 20 January 2020. facts only, no text reused. economicsonline.co.uk
Each numbered sentence above was checked against the source it cites before publication. Sentences citing Wikipedia adapt text from the English Wikipedia article Competition (economics) (contributors), used under CC BY-SA 4.0; this entry is available under the same licence. Other sources were used for facts only; no text or images are copied from them.
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Sources
Compiled from Wikipedia and the sources listed below. Text from Wikipedia is available under CC BY-SA 4.0; this entry is adapted from it.
- Wikipedia: Competition (economics) (CC BY-SA 4.0).
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