Business, Legal & Accounting Glossary
Competition in economics is a healthy rivalry that exists between sellers or firms to offer any type of commodity or economic service. Under competition, an economy is assumed to have several firms. These firms continuously strive to hold a greater portion of the market. This phenomenon in economics is termed as competition.
Competition was a common occurrence between merchants in foreign trade in ancient times. Classical economists of the 19th century studied this competition between two merchants and regarded it as a natural phenomenon that can occur within a free market where supply and demand exist simultaneously. Degree of competition depends on the number of sellers or buyers existing in an economy.
Perfect competition in economics is referred to as a situation in which firms have no control over the prices of a commodity. There exists no market power in the hands of sellers or buyers. This type of competition hardly exists in reality as it is based on some assumptions as follows:
Participants in perfect competition can earn a profit. However, the profit earned is normal profit. Firms can make only that much money, which is required to cover the economic costs. In this type of competition, a consumer improves his utility without worsening the utility of other consumers.
Monopolistic competition is a situation where market features characteristics of both perfect competition and monopoly. Monopolistic competition is a common market form prevailing in an economy. To obtain monopolistic competition, there are few assumptions:
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This glossary post was last updated: 29th March, 2020 | 1 Views.