In economics, competition refers to the process by which different sellers each try to offer better products, lower costs, and other advantages to selecting their products over a rival’s.
Economic competition enables the so-called “invisible hand” of the market to reward the most effective retailer, instead of depending on a central committee or monopoly to decide the economy. In less technical jargon, this means whoever provides the best product at the lowest price is most likely to reap the greatest rewards, at least theoretically.
In macroeconomics, competition refers to the process where countries compete with each other for resources. In microeconomics, it refers to the process where individual companies jockey with each other to appeal to consumers.
3 Benefits to Economic Competition
Most traditional economists think increased competition leads to better advantages for all economic participants. Here are three core advantages to consider:
1. Greater innovation: Economic analysis suggests more competitive markets lead to both increased innovation and greater overall economic growth as a result. If entrepreneurs feel the need to compete with other businesses, they have an incentive to offer more one-of-a-kind and far less identical products for their customers. Competition also leads a lot of brands to create new products on a regular basis to stay relevant to consumers.
2. Lower prices: When a large number 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. As such, greater market competition leads to greater price competition, resulting in retailers handing down lower prices to their consumers.
3. More customer choice: Product differentiation because of competition amongst retailers often gives customers greater decision-making power. In a competitive economic environment, customers can pick between different products from a wide variety of brands instead of purchasing the same identical products one week to the next from a small number of companies or even a single firm.
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