Is Competition That Important? Can’t We Just Play Fair?

Caitlyn Jones, Honorbound.

The answer is no. We in fact cannot, and should not, play fair.

In economics, “competition” is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying price, product, distribution, and promotion. Competition is crucial in our economy because it forces lower prices, better quality products, and increases quantity available. Without competition, one supplier would have the power to set a fixed price for a good, forcing those who purchase to pay an excessive amount for good that is worth much less. “Promoting competition is broadly accepted as the best available tool for promoting consumer well-being”1, Economics Professor Maurice E. Stucke writes. Competition has been attributed to the backbone of United States economic policy and is now broadly accepted as “the best available mechanism for maximizing the things that one can demand from an economic system” in most circumstances2.

In his novel, Naked Economics, Charles Wheelan3 discusses that firms are consistently aiming to maximize profits, making the competition an inevitable concept. If a firm wants to sell a product at a higher price than what the product is worth, they will not do as well as the firm that opts for the reverse strategy and sells the product at a lower price. Consumers are the ultimate deciders of prices in a market, and competition between firms solidify who will make the most and maximize profit. The competition also correlates with utility, as it is essential that consumers have easy access to the products that maximize their utility. Consumers are going to choose the best possible good or service at the best possible price with the best possible convenience, driving competition. Resources are finite, and if a consumer has a limited amount of dollars, they are not going to choose to spend all of their money in one place, even if the product that is sold by the one firm is something they desire greatly. Prices naturally fall back to market equilibrium, so firms that put high prices on their products ultimately put themselves at a disadvantage if their competitors choose the lower one.

If a book I have been dying to read is on sale at Barnes & Nobles for twenty dollars, but on the Kindle App for ten dollars, I will choose the less expensive option and face the opportunity cost of not having an actual book to highlight or write all over. Barnes & Nobles is my preferred firm, but Kindle has taken into account that consumers are more attracted to the lower, more convenient option. By making the online version of the book cheaper, it makes the online aspect more appealing (even though most people would prefer the actual book). This simple act of competition has put Kindle at an advantage without the consumer knowing it. They receive their book at a lower price and in less than five seconds, while Barnes & Nobles will have stacks of the book in their stockroom for God knows how long4. Competition is a natural concept, but easier lost than understood. If we did not respond to our natural competitive nature, there would be no growth or gain in the economy. For example, if Kindle had not approached the book-selling market in the way they did, Barnes & Nobles would not have created the Nook. These new devices that are constantly developing are competing with one another and creating a high demand from consumers, helping the economy.

 

1&2 Stucke, Maurice E. “Is competition always good?” Journal of Antitrust Enforcement. February 04, 2013. Accessed June 24, 2017. https://academic.oup.com/antitrust/article/1/1/162/274807/Is-competition-always-good.

3 Wheelan, Charles. Naked Economics: Undressing the Dismal Science. New York: W.W. Norton & Company, 2010.

4 Symeonidis, George. “The Effects of Competition.” MIT Press. January 17, 2002. Accessed June 24, 2017. https://mitpress.mit.edu/books/effects-competition.

 

 

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