The Significance of Competition

THE SIGNIFICANCE OF COMPETITION Private business, whether it be competitive or monopolistic, seeks to realize a profit. But profit-seeking activity, under the differing conditions of competition and monopoly, employs quite different methods and produces dissimilar results. It is impossible, within the scope of the present study, to analyze the consequences of the situations which obtain in each of the markets described. But the probable effects of competition and monopoly, in general, may be briefly outlined.

The Advantages of

Competition The resources of a nation, in land, in labor, and in capital, are limited in supply. The varieties of goods which might be produced with these resources are many. Economy requires that scarce resources be devoted to the production of those goods which consumers demand and that they be allocated among the Nation's industries in proportions which correspond to that demand. Competition operates to bring about this result. Failure in business curtails the supply of unwanted goods. Freedom of entry into business enlarges the supply of wanted goods. Land, labor, and capital are withdrawn from the one field and added to the other in response to the changing direction of consumer demand. The mobility characteristic of competition thus tends to achieve that allocation of resources which economy requires.

Competition serves the consumer. It operates negatively to protect him against extortion. If the quality of the product offered by one producer is low, the quality of that offered by another may be high. If the price charged by one producer is high, that asked by another may be low. The consumer is not at the mercy of the one as long as he has the alternative of buying from the other. More than this, competition operates affirmatively to enhance quality and reduce price. The producer who wishes to enlarge his profits must increase his sales. To do so, he must offer the consumer more goods for less money. As he adds to quality and subtracts from price, his rivals are compelled to do the same. The changes which he initiates soon spread throughout the trade. Every consumer of

its products gets more and pays less.

Competition is conducive to the continuous improvement of industrial efficiency. It leads some producers to eliminate wastes and cut costs so that they may undersell others. It compels others to adopt similar measures in order that they may survive. It weeds out those whose costs remain high and thus operates to concentrate production in the hands of those whose costs are low. As the former are superseded by the latter, the general level of industrial efficiency is accordingly enhanced.

Competition makes for material progress. It keeps the door open to new blood and new ideas. It is congenial to experimentation. It facilitates the introduction of new products, the utilization of new materials, and the development of new techniques. It speeds up innovation and communicates to all producers the improvements made by any one of them. Competition is cumulative in its effects. When competitors cut their prices, consumers buy more goods, output increases, and unit costs decline. The lower prices compel producers to seek still further means of cutting costs. The resulting gains in efficiency and in technology open the way to still lower prices. Goods are turned out in increasing volume and the general plane of living rises accordingly.

Competition may operate slowly; it may inflict incidental hardship; but it tends ultimately to serve the common good. It induces the businessman to maximize total output, to achieve full utilization of productive capacity, and to provide full employment for labor. It obtains his services for society at the lowest profit for which he is willing to perform them and forces him to distribute to workers in higher wages and to consumers in lower prices a major part of the gains resulting from improvements in technology. It harnesses the profit motive and puts it to work, increasing the output of goods, distributing them more widely, and raising the plane of living toward the highest level which productive resources and technical skill can maintain.