Competition: An Introduction: Rupendra Singh Asst. Prof

Competition: An Introduction
RUPENDRA SINGH
ASST. PROF.
What is Competition?
 The process of rivalry between firms striving to gain sales

and make profits
 Motive: self-interest, but outcome mostly beneficial for the
society
 Competition is not just an event, but a process
 It is not automatic – needs to be nurtured.
 Competition was defined by the court as a process that
required the numerous participants and decentralization.
 Competition is the engine of free enterprise.
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 From an economist perspective, competition
involves a process of business rivalry between
the firms that strive to wins customers'
business by achieving the lowest level costs
and prices, developing new products or
services or exploiting particular strengths,
skills or other advantage to meet customer’s
need more effectively than competitors.
 The economic rationale behind a free market
economy is that freely operating markets will
result in the most efficient allocation of a
nation’s scarce resources and will bring
consumers the widest variety of choices and
the lowest possible process.
 Competition forces the market players to
search for better permutation and combination
for providing greater profits through greater
efficiency.
 A part from free market system, competition law also has
social purposes.
 The social purpose rationale for competition law finds its
introduction in the passage of Justice Hands in the United
States V Aluminium Co. of America,
 “where he preferred the preservations of small business
over the preservation of free market. He stated that
“throughout the history of these statutes it has been
constantly assumed that one of their purposes was to
perpetuate and preserve, for its own sake and in spite of
possible cost, an organisation of industry in small units
which can effectively compete with each other”
Types of Competition
 Price Competition: Winning customers by lowering price
 Non-price Competition: Winning customers by advertising,

offering after-sales-services, using sale promotion tools, etc.
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Ways of Competition
 Fair Competition: Fair means such as producing quality goods,

becoming cost-efficient, optimising the use of resources, best
technology, research & Development, etc.
 Unfair Competition: Unfair means such as fixing price with the rivals,
predatory pricing, disparaging or misleading advertisements, etc.
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Benefits from Competition
 Efficiency
 Innovation
 Check on concentration
 Economic growth (wealth and job creation)
 Consumer welfare gains:
 Lower prices,
 Better quality,
 Freedom of choice and
 Easy access
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CERTAIN ASSUMPTIONS IN
ECONOMICS
 Economists assume that there are a number of different buyers and
sellers in the marketplace.
 This means that we have competition in the market, which allows

price to change in response to changes in supply and demand.
 Furthermore, for almost every product there are substitutes, so if

one product becomes too expensive, a buyer can choose a cheaper
substitute instead.
 In a market with many buyers and sellers, both the consumer and
the supplier have equal ability to influence price.
 In some industries, there are no substitutes
and there is no competition.
 In a market that has only one or few suppliers

of a good or service, the producer(s) can
control price, meaning that a consumer does
not have choice, cannot maximize his or her
total utility and has have very little influence
over the price of goods.
MONOPLOY, OLIGOPOLY AND PERFECT
COMPETITION
 A monopoly is a market structure in which there is only one
producer/seller for a product.
 In other words, the single business is the industry.
 Entry into such a market is restricted due to high costs or
other impediments, which may be economic, social or
political.
 For instance, a government can create a monopoly over an
industry that it wants to control, such as electricity.
 Another reason for the barriers against entry into a
monopolistic industry is that oftentimes, one entity has the
exclusive rights to a natural resource.
 For example, in Saudi Arabia the government has sole
control over the oil industry.
 A monopoly may also form when a company has a copyright
 In an oligopoly, there are only a few firms that make up an industry.
 This select group of firms has control over the price and, like a monopoly, an
oligopoly has high barriers to entry.
 The products that the oligopolistic firms produce are often nearly identical
and, therefore, the companies, which are competing for market share, are
interdependent as a result of market forces.
 Assume, for example, that an economy needs only 100 widgets.

 Company X produces 50 widgets and its competitor, Company Y, produces
the other 50.
 The prices of the two brands will be interdependent and, therefore, similar.
 So, if Company X starts selling the widgets at a lower price, it will get a
greater market share, thereby forcing Company Y to lower its prices as well .
 There are two extreme forms of market structure: monopoly and, its opposite,
perfect competition.
 Perfect competition is characterized by many buyers and sellers, many

products that are similar in nature and, as a result, many substitutes.
 Perfect competition means there are few, if any, barriers to entry for new
companies, and prices are determined by supply and demand.
 Thus, producers in a perfectly competitive market are subject to the prices

determined by the market and do not have any leverage.
 For example, in a perfectly competitive market, should a single firm decide to

increase its selling price of a good, the consumers can just turn to the nearest
competitor for a better price, causing any firm that increases its prices to lose
market share and profits
 1. All firms sell an identical product.
 2. All firms are price takers.
 3. All firms have a relatively small market share.
 4. Buyers know the nature of the product being
sold and the prices charged by each firm.
 5. The industry is characterized by freedom of
entry and exit.
 It is also referred as “PURE COMPETITION”.
Competition Law
 Aims to protect process of competition and not competitors

 Consist of a set of rules to curb Anti Competitive Practices
(ACPs)
 Sets up the Competition Authority:
 Competition Commission of India (CCI) and
 National company law tribunal (NCLAT)
 Over 120 countries have adopted Competition Law
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Competition: An Introduction

 The process of rivalry between firms striving to gain sales

 Price Competition: Winning customers by lowering price

 Non-price Competition: Winning customers by advertising,

 Fair Competition: Fair means such as producing quality goods,

 This means that we have competition in the market, which allows

 Furthermore, for almost every product there are substitutes, so if

 In a market that has only one or few suppliers

 Assume, for example, that an economy needs only 100 widgets.

 Perfect competition is characterized by many buyers and sellers, many

 Thus, producers in a perfectly competitive market are subject to the prices

 For example, in a perfectly competitive market, should a single firm decide to

 Aims to protect process of competition and not competitors

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