What Does Competition Mean in Economics?
In economics, competition refers to the process by which various sellers each attempt to provide better products, lower costs, and other advantages to selecting their products over a competitor’s.
The economic competition enables the so-called “invisible hand” of the market to reward the most successful seller, rather than depending on a central committee or monopoly to decide the economy. In less technical terms, this means whoever offers the best product at the lowest cost is most likely to receive the highest rewards, at least in theory.
In macroeconomics, competition refers to the process by which countries compete with each other for resources. In microeconomics, it refers to the process by which individual companies jokey with each other to appeal to customers.
3 Benefits to Economic Competition
Most conventional economists believe more competition leads to greater benefits for all economic participants. Below are three core advantages to take into consideration:
1. Greater innovation: Economic analysis indicates more competitive markets lead to both increased innovation and greater overall economic growth a result. If business owners feel the need to compete with other businesses, they have an incentive to offer more unique and much less uniform products for their consumers. Competition additionally leads a lot of brands to create new products on a regular basis to stay relevant to customers.
2. Lower prices: When a lot of companies compete with each other, one of the best ways for one to get a competitive advantage over the others is to provide lower prices. Thus, greater market competition leads to greater price competition, resulting in sellers passing on lower costs to their customers.
3. More consumer choice: Product differentiation due to competition among retailers often provides customers better decision-making power. In a competitive economic environment, customers can pick between different products from a wide variety of brands as opposed to purchasing the same identical products one week to the next from a small number of companies or even a single company.
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