Competition in Markets Promotes Economic Efficiency

COMPETITION IN MARKETS PROMOTES ECONOMIC EFFICIENCY

by

Deepanwita Nandi & Deval Nigam

Markets today are all about competition. Starting right from a hair pin to air planes, there is competition almost everywhere. And for sustaining competition, an economy must be efficient. An efficient economy utilizes its technological, human, scientific, natural and geographical resources to its fullest potential with minimum inputs and available technology. The competition in an economy is very similar to that existing in nature among different species for their survival. Nature follows a simple rule – the theory of Charles Darwin, “Survival of the Fittest”. Competition has been an important ingredient in the recipe of mankind’s history. Right from being predators in Stone Age to inventing alphabet in Iron Age to being traders in the Modern Age and finally to being super humans today, competition has prevailed in every part of the timeline. Though being fit certifies survival, but advancement in the field of medical science and technology made the weaklings too survive during this course and thus man began defying nature’s rule of survival by the fittest only. An economy is made and run by these super humans and so can we say Darwin’s words also become invalid for competition in an economy?

No general equation can be formed showing the effect of competition in market on the economy or its efficiency. This is because unlike nature, an economy shows dynamic behaviour to competition and so, the rules of competition and survival are different to every economy. Many firms get support of government to thrive in the market, therefore it can be seen that the unfit firms also are surviving. So it’s not just the survival of the most efficient, cheapest and latest in the market, it is ‘survival of anything and everything’.

An economy is made up of different kinds of industries such as telecom, infrastructure, automobile, defence etc. Competition in these sectors varies as per...