Competition

Competition

Introduction

Market exchange has a fundamental impact both on efficiency and on the distribution of income and wealth. Efficiency in this sense is attained if the allocation of resources is Pareto efficient, that is, if no one can be made better off without someone else being made worse off. Economic theory holds that this efficiency will be promoted through the workings of the price mechanism, which organizes production in line with consumer preferences. However, while the price mechanism is the analogue of Adam Smith's notion of the invisible hand, the animating force that breathes life into the invisible hand and guarantees its functioning is competition. Competition in our societies is present everywhere in life, sporting life or love life. It puts men in a position to compete against each other (Barney, 1991). But the weapons they have and the constraints they face vary with their activities. In economic life, some might try to evade or distort the playing field so it is important to secure the rule of the competition rules and to condemn those who use unfair practices prohibited. Concurrence For the economist, the competition has two aspects:

Concurrence - The first aspect considers the competition as all the competitors of a given firm, that is to say all those present in the same market with the same product.

Concurrence - The second part describes the competition as a permanent state of competition, confrontation between sellers and buyers, which is essential for the proper functioning of the market. It is this aspect that is developed below in the study of perfect competition.

Competition between suppliers to maximize their profit will push prices toward market clearing levels the prices at which suppliers sell all their stock and consumers do not want to buy any more goods and services. The key role competition plays in economic theory goes some way toward explaining the emphasis placed on promoting competition by a whole range of economic policies today (David, 2005).

Perfect Competition

We find a situation of perfect competition when many companies sell similar products to many buyers, when there is no barrier to entry in the industry and when firms have no competitive advantage over their competitors. Businesses operating in a market with perfect competition have no influence on the price of products and services (Alderson, 2007). This means that any organization that wants to carve a place in this market will offer its products and services at the same price as all its competitors, otherwise consumers will have the reflex to look elsewhere. For example, the rice industry is an industry under perfect competition (David, 2005). The short term decisions are made based on the seasonal and cyclical price. The long term decisions, they will be taken more into line with demand for the product or service and technological innovations in the industry (Barney, 1991).

Economic theory distinguishes different forms of competition according to the varying degrees of market power that firms possess. Following neoclassical economic methodology, the various forms of competition are modeled using more ...