Competition (economics)

In economics, competition is a scenario where different economic firms[Note 1] are in contention to obtain goods that are limited by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater the selection of a good is in the market, prices are typically lower for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly). According to 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.[1] 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. The number of buyers within the market also factors into competition with each buyer having a willingness to pay, influencing overall demand for the product in the market.

Airlines competing for Europe-Japan passenger flight market: Swiss and SAS
Adjacent advertisements in an 1885 newspaper for the makers of two competing ore concentrators (machines that separate out valuable ores from undesired minerals). The lower ad touts that their price is lower, and that their machine's quality and efficiency was demonstrated to be higher, both of which are general means of economic competition.

Competitiveness[2] pertains to the ability and performance of a firm, sub-sector or country to sell and supply goods and services in a given market, in relation to the ability and performance of other firms, sub-sectors or countries in the same market. It involves one company trying to figure out how to take away market share from another company. Competitiveness is derived from the Latin word “competere”, which refers to the rivalry that is found between entities in markets and industries. It is used extensively in management discourse concerning national and international economic performance comparisons.[3]

The extent of the competition present within a particular market can measured by; the number of rivals, their similarity of size, and in particular the smaller the share of industry output possessed by the largest firm, the more vigorous competition is likely to be.[4]

Early economic research focused on the difference between price and non-price based competition, while modern economic theory has focused on the many-seller limit of general equilibrium.


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