Competition among merchants in foreign trade was common in ancient times, and it has been a characteristic of mercantile and industrial expansion since the Middle Ages. By the 19th cent. classical economic theorists had come to regard competition, at least within the national state, as a natural outgrowth of the operation of supply and demand within a free market economy. The price of an item was seen as ultimately fixed by the confluence of these two forces.
Early capitalist economists argued that supply-and-demand pricing worked better without any regulation or control. Their model of perfect competition was marked by absolute freedom of trade, widespread knowledge of market conditions, easy access of buyers to sellers, and the absence of all action restraining trade by agencies of the state. Under such conditions no single buyer or seller could materially affect the market price of an item. After c.1850, practical limitations to competition became evident as industrial and commercial combinations and trade unions arose to hamper it.
A major theme in the history of competition has been the monopoly, which represents a business interest so large that it has the ability to control prices in a given industry. Some governments attempted to impose competition through legislation, as the United States did in the Sherman Antitrust Act of 1890, which made many monopolistic practices illegal. President Teddy Roosevelt was well known for his "trust-busting," filing lawsuits against over 40 major corporations during his two terms in office (1901-09). Later legislation in the United States, such as the Clayton Act (1914), the Robinson-Patman Act (1936), and the Celler-Kefauver Act (1950), offered revisions and clarifications of the Sherman Act. The Federal Trade Commission, created in 1914, is a regulatory agency with the mission of encouraging competition and discouraging monopoly.
Until the mid-20th cent., there was widespread government acceptance of the existence of industrial and commercial combinations, together with an effort to apply regulation administered either by the state or by the industries themselves. Governments had accepted the existence of what were considered "practical monopolies," particularly in the field of public utilities (see utility, public). This attitude changed somewhat after the 1970s; for example, the U.S. government forced the breakup (1984) of American Telephone and Telegraph and deregulated (1985) natural-gas prices. In the 1990s, state regulators began to allow competition among some utilities (especially natural-gas and electricity suppliers) in order to bring prices down. This was also a trend in some European countries; Germany, for example, deregulated its electric power industry in 1999.
See M. L. Greenhut et al., Economics of Imperfect Competition (1987); L. G. Telser, A Theory of Effective Cooperation and Competition (1987); T. Frazer, Monopoly, Competition and the Law: The Regulation of Business Activity in Britain, Europe and America (1988).
Market situation in which many independent buyers and sellers may exist but competition is limited by specific market conditions. The theory was developed almost simultaneously by Edward Hastings Chamberlin in his Theory of Monopolistic Competition (1933) and Joan V. Robinson in her Economics of Imperfect Competition (1933). It assumes product differentiation, a situation in which each seller's goods have some unique properties, thereby giving the seller some monopoly power. Seealso monopoly; oligopoly.
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Competition is a rivalry between individuals, groups, nations, or animals, for territory or resources. It arises whenever two or more parties strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For example, animals compete over water supplies, food, and mates. In addition, humans compete for attention, wealth, prestige, and fame.
Competition may give incentives for self-improvement. For example, if two watchmakers are competing for business, they will lower their prices and improve their products to increase sales. If birds compete for a limited water supply during a drought, the more suited birds will survive to reproduce and improve the population.
Rivals will often refer to their competitors as "the competition". The term can also be used to refer to the contest or tournament itself.
The Latin root for the verb "to compete" is "competere", which means "to seek together" or "to strive together". However, even the general definition stated above is not universally accepted. Social theorists, most notably Alfie Kohn and cooperativists in general, argue that the traditional definition of competition is too broad and vague. Competition which originates internally and is biologically motivated can and should be defined as either amoral competition or simply the survival instinct, i.e. behavior which is neither good nor bad, but exists to further the survival of an individual or species (for instance hunting), or behavior which is coerced (for instance self-defense). Social Darwinists, however, state that competition is not only moral, but necessary for the survival of the species.
In addition, the level of competition can also vary. At some levels, competition can be informal; more for pride and/or fun. However, other competitions can be extremely serious; for example, some human wars have erupted because of the intense competition between two nations or nationalities.'''
On the negative side, competition can cause injury to the organisms involved, and drain valuable resources and energy. Human competition can be expensive, as is the case with political elections, international sports competitions, and advertising wars. It can lead to the compromising of ethical standards in order to gain an advantage: for example, several athletes have been caught using banned steroids in professional sports in order to boost their own chances of success or victory. It can also be harmful for the participants, such as athletes who injure themselves when pushing their body past its natural limits, or companies which pursue unprofitable paths while engaging in competitive rivalries.
However, competition may also lead to wasted (duplicated) effort and to increased costs (and prices) in some circumstances. For example, the intense competition for the small number of top jobs in music and movie acting leads many aspiring musicians and actors to make substantial investments in training which are not recouped, because only a fraction become successful.
Three levels of economic competition have been classified:
1. The most narrow form is direct competition (also called category competition or brand competition), where products which perform the same function compete against each other. For example, one brand of pick-up trucks competes with several other brands of pick-up trucks. Sometimes, two companies are rivals and one adds new products to their line, which leads to the other company distributing the same new things, and in this manner they compete.
2. The next form is substitute or indirect competition, where products which are close substitutes for one another compete. For example, butter competes with margarine, mayonnaise and other various sauces and spreads.
3. The broadest form of competition is typically called budget competition. Included in this category is anything on which the consumer might want to spend their available money. For example, a family which has $20,000 available may choose to spend it on many different items, which can all be seen as competing with each other for the family's expenditure.
Competition does not necessarily have to be between companies. For example, business writers sometimes refer to internal competition. This is competition within companies. The idea was first introduced by Alfred Sloan at General Motors in the 1920s. Sloan deliberately created areas of overlap between divisions of the company so that each division would be competing with the other divisions. For example, the Chevy division would compete with the Pontiac division for some market segments. Also, in 1931, Procter & Gamble initiated a deliberate system of internal brand-versus-brand rivalry. The company was organized around different brands, with each brand allocated resources, including a dedicated group of employees willing to champion the brand. Each brand manager was given responsibility for the success or failure of the brand, and compensated accordingly. This is known as intra-brand competition.
Finally, most businesses also encourage competition between individual employees. An example of this is a contest between sales representatives. The sales representative with the highest sales (or the best improvement in sales) over a period of time would gain benefits from the employer.
It should also be noted that business and economic competition in most countries is often limited or restricted. Competition often is subject to legal restrictions. For example, competition may be legally prohibited, as in the case with a government monopoly or a government-granted monopoly. Tariffs, subsidies or other protectionist measures may also be instituted by government in order to prevent or reduce competition. Depending on the respective economic policy, the pure competition is to a greater or lesser extent regulated by competition policy and competition law.
Competition between countries is quite subtle to detect, but is quite evident in the World economy. Countries compete to provide the best possible business environment for multinational corporations. Such competition is evident by the policies undertaken by these countries to educate the future workforce. For example, East Asian economies such as Singapore, Japan and South Korea tend to emphasize education by allocating a large portion of the budget to this sector, and by implementing programmes such as gifted education. (See separate sub-markets principle).
Competition law, known in the United States as antitrust law, has three main functions. Firstly, it prohibits agreements aimed to restrict free trading between business entities and their customers. For example, a cartel of sports shops who together fix football jersey prices higher than normal is illegal. Secondly, competition law can ban the existence or abusive behaviour of a firm dominating the market. One case in point could be a software company who through its monopoly on computer platforms makes consumers use its media player. Thirdly, to preserve competitive markets, the law supervises the mergers and acquisitions of very large corporations. Competition authorities could for instance require that a large packaging company give plastic bottle licenses to competitors before taking over a major PET producer. In this case (as in all three), competition law aims to protect the welfare of consumers by ensuring business must compete for its share of the market economy.
In recent decades, competition law has also been sold as good medicine to provide better public services, traditionally funded by tax payers and administered by democratically accountable governments. Hence competition law is closely connected with the law on deregulation of access to markets, providing state aids and subsidies, the privatisation of state-owned assets and the use of independent sector regulators, such as the United Kingdom telecommunications watchdog Ofcom. Behind the practice lies the theory, which over the last fifty years has been dominated by neo-classical economics. Markets are seen as the most efficient method of allocating resources, although sometimes they fail, and regulation becomes necessary to protect the ideal market model. Behind the theory lies the history, reaching back further than the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny and sometimes severe sanctions. Since the twentieth century, competition law has become global. The two largest, most organised and influential systems of competition regulation are United States antitrust law and European Community competition law. The respective national authorities, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) in the United States and the European Commission's Competition Directorate General (DGCOMP) have formed international support and enforcement networks. Competition law is growing in importance every day, which warrants for its careful study.
In addition, there is inevitable competition inside a government. Because several offices are appointed, potential candidates compete against the others in order to gain the particular office. Departments may also compete for a limited amount of resources, such as for funding. Finally, where there are party systems, elected leaders of different parties will ultimately compete against the other parties for laws, funding and power.
Finally, competition also exists between governments. Each country or nationality struggles for world dominance, power, or military strength. For example, the United States competed against the Soviet Union in the Cold War for world power, and the two also struggled over the different types of government (in these cases representative democracy and communism). The result of this type of competition often leads to worldwide tensions, and may sometimes erupt into warfare.
While some sports (such as fishing or hiking) have been viewed as primarily recreational, most sports are considered competitive. The majority involve competition between two or more persons (or animals and/or mechanical devices typically controlled by humans, as in horse racing or auto racing). For example, in a game of basketball, two teams compete against one another to determine who can score the most points. While there is no set reward for the winning team, many players gain an internal sense of pride. In addition, extrinsic rewards may also be given. Athletes, besides competing against other humans, also compete against nature in sports such as whitewater kayaking or mountaineering, where the goal is to reach a destination, with only natural barriers impeding the process. A regularly scheduled (for instance annual) competition meant to determine the "best" competitor of that cycle is called a championship.
While professional sports have been usually viewed as intense and extremely competitive, recreational sports, which are often less intense, are often considered a healthy option for the release of competitive urges in humans. Sport provides a relatively safe venue for converting unbridled competition into harmless competition, because sports competition is restrained. Competitive sports are governed by codified rules agreed upon by the participants. Violating these rules is considered to be unfair competition. Thus, sports provide artificial (not natural) competition; for example, competing for control of a ball, or defending territory on a playing field is not an innate biological factor in humans. Athletes in sports such as gymnastics and competitive diving compete against each other in order to come closest to a conceptual ideal of a perfect performance, which incorporates measurable criteria and standards which are translated into numerical ratings and scores by appointed judges.
Sports competition is generally broken down into three categories: individual sports, such as archery; dual sports, such as doubles tennis, and team sports competition, such as cricket or football. While most sports competitions are recreation, there exist several major and minor professional sports leagues throughout the world. The Olympic Games, held every four years, is usually regarded as the international pinnacle of sports competition.
Competitions also make up a large proponent of extracurricular activities in which students participate. Such competitions include TVO's broadcast Reach for the Top competition, FIRST Robotics, Duke Annual Robo-Climb Competition (DARC) and the University of Toronto Space Design Contest. In Texas, the University Interscholastic League (UIL) has 22 High School-level contests and 18 elementary and Junior High in subjects ranging from accounting to science to ready writing.
However, Stephen Jay Gould and others have argued that as one ascends the evolutionary hierarchy, competitiveness (the survival instinct) becomes less innate, and more a learned behavior. The same could be said for co-operation: in humans, at least, both co-operation and competition are considered learned behaviors, because the human species learns to adapt to environmental pressures. Consequently, if survival requires competitive behaviors, the individual will compete, and if survival requires co-operative behaviors, the individual will co-operate. In the case of humans, therefore, aggressiveness may be an innate characteristic, but a preson need not be competitive at the same time, for instance when scaling a cliff. On the other hand, humans seem also to have a nurturing instinct, to protect newborns and the weak. While that does not necessitate co-operative behavior, it does help.
The term also applies to econometrics. Here, it is a comparative measure of the ability and performance of a firm or sub-sector to sell and produce/supply goods and/or services in a given market. The two academic bodies of thought on the assessment of competitiveness are the Structure Conduct Performance Paradigm and the more contemporary New Empirical Industrial Organisation model. Predicting changes in the competitiveness of business sectors is becoming an integral and explicit step in public policymaking. Within capitalist economic systems, the drive of enterprises is to maintain and improve their own competitiveness.