Competition between firms:
In the Government in markets It set out ways in which Government has an influence on markets throughout the economy. Government participates in markets directly and indirectly: direct participation occurs when Government acts as a supplier or a buyer of goods and services. Indirect participation is achieved through the use of taxes, subsidies, regulation and influence. For example, some markets which were previously dominated by state monopolies have been opened up to competition. In these markets private, public and third sector providers compete to supply consumers. An example ofthis type of market is the provision of health care services where private and third sector hospitals directly compete with NHS hospitals for publicly funded patients. The OFT's recent report on choice and competition in public services addresses the issue competition in the market in areas such as health and education.
The role of competition:
Competition is a process of rivalry between suppliers seeking to win business. Competition is sometimes assumed to focus only on price, but suppliers can also compete in other ways, for example by developing the quality of existing products, by using their entrepreneurial skills, or investing in research to develop new goods and services. Some of the processes of competition can also be applied within the public sector. For example, hospitals might compete for patients within a framework where consumers can choose between different providers. For the most part, open competitive markets are the best way of maximising consumer welfare and raising economic growth.
Competition:
• Drives firms to improve their internal efficiency and reduce costs. Cost minimisation allows firms to deliver the same goods and services to consumers, but at lower prices. This will attract a greater number of consumers and the firm will gain a larger market share.
• Provides incentives to firms to adopt new technology. Early adoption of technology and/or new techniques and processes helps firms minimise their costs.
• Provides incentives to firms to invest in innovation. Investment in innovation allows firms to improve the quality of their existing products and/or develop new products and services to better suit the changing needs and preferences of consumers.
• Reduces managerial inefficiency. Competitive pressures from other firms and new entrants lead firms to look for better, more efficient ways to organise their business. Lack of effective competition could lead firms and managers to operate with inefficient business models and technology as firms are unlikely to lose profits. Competition is not just about the behaviour of firms within a given market. Significant benefits are derived from the entry or the threat of entry by new firms and the exit of inefficient firms. New firms bring with them new ideas and better, more efficient ways of producing goods. They also create incentives for existing firms to improve their performance and develop their products, in order to avoid losing market share and being forced to exit the market. Reducing entry and exit barriers can therefore be a powerful mechanism in driving and maintaining.
Domestic competition and international competitiveness:
Competition in domestic markets also increases the degree to which British firms and products can compete in international markets. It does this in several ways:
• Domestic competition in the traded goods and services sectors can directly improve competitiveness by driving exporting businesses to become more efficient.
• Where goods and services are not directly traded, they often provide important inputs for other firms. Competition in these markets reduces input costs for exporting businesses.
• Even where non-traded goods and services do not provide direct inputs for exporting businesses, competition can still play a role in creating the conditions for attracting
