Competition is one of the most important forces in economics and is especially important to the concepts of capitalism and economic individualism. It occurs when businesses or individuals try to attract customers, sell goods, or provide services better than their rivals. Economists consider competition important because it supposedly drives innovation, improves quality, and helps keep prices fair. Economists argue that without competition, markets could become inefficient, unfair, and even harmful to consumers.
COMPETITION IN ECONOMICS – SUMMARY
Competition is a key factor in economics and is a central principle in right-wing economic systems such as laissez-faire capitalism and free market economies. Under left-wing economic systems such as a command economy or mercantilism, the government controls the means of production and therefore there is little to no competition. Laissez-faire capitalism, which emerged in the timeframe of the Industrial Revolution, introduced the idea that individuals and businesses should compete against each other and their success should be determined by the market forces of supply and demand. Therefore, consumers had the ability to decide the success of a business based upon whether they purchased the good or service. Laissez-faire capitalists argued that competition benefited society in a number of ways, including: it lowered the price of goods and service as producers competed for the business of consumers, and it fostered innovation of goods and services as companies compete to outdo each other. For example, modern companies such as Apple and Samsung compete for consumers business which causes them to innovate their phones with new features, while still trying to keep costs as low as possible.
The concept of competition is often linked the ideas and writings of Adam Smith, who was a famous economic theorist in the 18th century. In his most famous work, titled Wealth of Nations (1776), Smith argued against the principles of mercantilism, including excessive government intervention in the economy. Instead, he argued for economic freedom based upon the ideas of free trade and competition. He believed that competition between producers would ultimately benefit the whole economy. Furthermore, he linked the importance of competition with the concept of supply and demand and argued that instead of government intervention in the economy, the prices and wages should be set by the market forces. He explained this idea as the invisible hand. Regardless, Smith’s idea of competition transformed the economy of the 19th century and caused it to shift to the right.
