Competition in Market Promotes Economic Efficiency

2913 Words12 Pages
“COMPETITION IN MARKETS PROMOTES ECONOMIC EFFICIENCY” Competition “Competition is the actions of two or more rivals in pursuit of the same objective. In an economic context, the specific objective pursued is usually either selling goods to buyers or buying goods from sellers.” “Competition is central to the function of markets, and encourages innovation, productivity and growth, all of which it brings economic efficiency and reduce poverty. However, markets do not always work well, and uncompetitive markets are often those that matter most for the poor. This essay explains the direct and indirect, and often complex, linkages between competition, competition policy and economic efficiency in market. The existence and importance of these linkages is still not sufficiently recognized in the developing world.” Competition among buyers drives the equilibrium price in a market up to the demand price and forces buyers to spend their incomes on the most satisfying goods. Competition on both the demand-side and supply-side of the market results in equality between the demand price and the supply price, which is essential for efficiency. Without competition, sellers can charge more than the supply price or buyers can pay less than the demand price, neither of which results in economic efficiency. A market with a large number of buyers and sellers, such that no single buyer or seller is able to influence the price or control any other aspect of the market. That is, none of the participants have significant market control. A competitive market achieves efficiency in the allocation of scarce resources if no other market failures are present. A competitive market is a market with a sufficient numbers of both buyers and sellers such than no one buyer or seller is able to exercise control over the market or the price. Economic efficiency is achieved because competition among
Open Document