Competition (economics)

Competition referred to in economics the pursuit of at least two actors ( business entities ) to a destination, the higher degree of target achievement of an actor a lower degree of target achievement of other reasons.

The distinction of sporting competition as comparison (English competition) and competition as arguing -displacing comparison (English rivalry ) is arbitrary and has formed in the economy as a derivation from the competition law. Probably the anarchic armed component is the reason for this use of the term in a consensus-oriented society with detailed codified law. In the academic economic literature, especially in the Anglo-Saxon literature, there is no such distinction. A linguistic justification for this distinction does not exist also. The linguistic variant competition in Austria has the same meaning of the word, the word part bet ( bet engl. ) in Germany is rather insignificant.

• 8.1 Competitive strategies
• 8.2 Competitive Advantages

Functionality

In economics we distinguish various static and dynamic features of the competition:

• Control: provision of need-based services ( consumer preferences ) of goods (goods or services ) at the lowest possible prices
• Resource allocation: optimal allocation of production factors ( labor, land, capital) to alternative uses and an efficient combination of factors
• Innovation: product and process innovations are generated and technological progress spread.
• Distribution: Primary distribution of income ( market income ) according to the principle of justice performance
• Customization: Rapid response to ever-changing data location

As social ( socio-political ) functions of free market competition are:

• Freedom of action: Market participants should be able to act on the market without restrictions. The freedom of action is intertwined with the
• Freedom of choice: consumers have the choice between different offers and workers the chance to change their workplace.

→ freedom, promoted by the competition, in addition to prosperity is a Final goal of economic policy.

• Control function: Effective competition with a number of competitors at the same time prevents strong social and political positions of power.

Requirements

Markets are mostly subject to private or government restrictions on competition - for example the presence of a cartel or monopoly. As conditions for effective competition therefore often private property rights, freedom of trade, freedom of establishment, freedom to contract, a functioning judiciary, a functioning price system, a functioning monetary system, market transparency and market openness are considered.

Competition Theory

Classical liberal ideas competition

According to the classical liberal political economists Adam Smith, the self-interested rational pursuit of individual competitor leads to maximum profit at the same time increasing public welfare, because they have a (the principle of the invisible hand ) to the cheapest supply of goods through the market mechanism.

For classical liberals, there are two contrasting types of markets: free competition and monopoly. The entrepreneur 's goal is to maximize its profits in a market economy. Important for the competition are low barriers to market entry and exit barriers. If these conditions are true, monopoly profits are competitively harmless, since they have a signal effect on potential suppliers. This results in a competition between the increasing number of vendors. In the competition for the deal makes one the race that makes the best offer, so that the competitors mutually reduce the profits in rivalry for the deal with exchange partners by granting of favorable business conditions in the action parameters ( price, quality, sales, etc.). Prerequisite for competition in at least two providers are rules which protect competition.

Model of John Maurice Clark

The American economist John Maurice Clark understands competition a never ending process, which consists of advances of individual pioneering company and from persecution actions of so-called generic, accepted at the temporary positions of power of the " pioneer ", are even desirable, because only by economic growth and technical possible to achieve progress.

Evolutionary theory of competition

A modern development of the model of the so-called dynamic competition ( Clark ) is found in the evolutionary theory of competition by Wolfgang Kerber, which transmits the survival of the evolution on the competitive relationship. ( For this purpose, it connects from derm conceptual model of the evolution of the elements of variation and selection with the assumption of incomplete knowledge, as follows :) The test provider with any product, what the buyers like, select it from the providers of ( selection) and " reward " by purchasing the provider with the best offer. The competing supplier who has a disadvantage remains only to change its range (variation ) by lowering the price or improve the quality or tried in other ways to gain the favor of customers. This " knowledge-creating process of the competition" the knowledge of the provider increases on the preferences of the customers and the customers' needs are better met (in the best case). This theory has two advantages: one of the few competitive theories they considered not only the supply side - as the danger is in the price theory and game theory - but binds the competitive process in the provider - demand ratio a. Moreover, this theory can also in practical competition policy, namely merger control apply in the EU Commission.

Competition as a structuring of the risk, according to Luhmann

Niklas Luhmann sees the benefits of economic competition is that it can restructure risks. When a complex system of economic transparency and risks producing and a lack of information to cope rationally with this situation would remain the observation of competitors as a viable way to deal with risks.

This thesis is where competition takes place only between a few players, even a warning. For is not the competition divers enough, there is a risk that the strategies of the competitors are similar. A recent example are bankers justify mass layoffs at already high profits with the still higher profits from competitors who think the same.

Even with a large number of competitors can disappear the requirement of complexity when they are synchronized, for example by similar education, similar socialization or through mutual adjustment via fast-acting means of communication and mass media etc. The synchronization even if competitors similarly functioning, use software-based decision-making procedures.

A glaring and concerning the deadly consequences not only anecdotal example of a failure of competition in the absence of diversity are games where two competitors race towards their cars on a cliff. Who brakes first, loses. In Anglo Saxon single-minded is a term with positive, but he leads here aimed at eliminating competition in a still existing competitive situation. This is the very structure of the risk; the competitors no longer structure due to missing diversity of their thinking, the risk involved in a survival -promoting way. In this situation, is not the structure of the competition risk but is the cause of risk.

Game theory

The mathematical modeling of the competition dedicated to the game theory. It allows the declaration last competition event. As a predictive instrument in the competition can be identified with it, what kind of game there is competition and what resources and strategies are best to use in the type of game found.

Economic costs and benefits of competition

Benefit: In the market economy model performs the transposition by competitive pricing for Pareto - optimal allocation of resources. If competition in the economy causes consumers get better products at lower prices, so it has a value for the consumer ( consumer surplus, welfare gain ).

A benefit of competition is also to provide impetus for innovation and rapid adaptation to new circumstances. The former monopolist Federal Post Office, for example, allowed No cordless phones, which were a matter of course already in other countries. On the other hand, he carried along with other European carriers to the fact that the technology (DECT) cordless phones for reliable and trouble-free was, than in countries with simple analog systems. With DSL in turn led competition from private companies to the fact that on telephone lines, data rates can be transmitted which exceed the performance of ISDN by orders of magnitude.

Cost: competition can also act uneconomical, namely when competing suppliers or buyers are not on their own be able to stop a negative cycle (market failure).

To answer the question of whether and how much competition or whether coordinated cooperation leads to the desired results, be used, among other methods and findings of the optimization calculation and the game theory. In this case, costs and benefits are compared with each other. The assessment should also economic policy beliefs play a significant role.

Restrictions on competition and competition policy

From the selfish interests of market actors, a strong market position to achieve ( market power ), results in the risk of restrictions on competition. To prevent them, the state performs a number of authorities through a competitive competition policy.

In economics, this is called a restriction of competition when price and quality of their own performance are not subject to discipline by a market rival. Competition is then present only more limited. A restriction may be grounded in market power or in an explicit coordination ( cartel) or an imitation in oligopoly lie.

There are both government restrictions on competition (eg, tariffs, non-tariff barriers or state monopolies ) and private restrictions on competition ( behavioral coordinations, concentrations and competitive abuse).

Competition policy is an area of economic policy. It describes state rules and procedures with the aim to prevent economic or social adverse effects of cartels and other restraints of competition.

Competition Law

Competition law is the comprehensive generic term for the right to combat unfair competition actions ( classical competition law in the strict sense) and the right against Restraints of Competition ( Antitrust).

Intensity of competition

In general, we mean by competitive intensity the degree of mutual dependence ( interdependence ) of the competitors with each other. A possible specification of the intensity of competition may be to determine the speed, be reversed with the projections of a competitor. Important models for this originates from Alfred E. Ott, Almarin Phillips, Erhard Kantzenbach and Michael E. Porter.

Porter describes five " drivers of competition" ( Five Forces), which determine the intensity of competition:

Competitive strategies and competitive advantages

Competitive strategies

As a competitive strategy (including competitive behavior ) refers to those behaviors of market players, which are the competitive environment adequately. Aim is to gain a competitive advantage. The behavior of the entrepreneurial competitors with each other - even away from the extremes - very different and often typical of the industry. In particular competitive strategies are applied, such as displacement struggles and " price wars". It can also be a common cause (not prearranged ) Still Hold to cartel-like conditions. Cartels and other Restraints of Competition turn off the competitive nature of the market by agreements on conditions are met (not just on prices ). Also be in marketing, that is, at the scheduled action on the markets with the aim to achieve a unique position (USP, unique selling proposition ), taken measures that would be more correct to describe as a competitive avoidance strategies ( patent protection, site protection, exclusive distribution agreements, selective distribution, etc.)

In practical business is competitive in offering regularly only from a few market participants. To stand for the individual buying process in general little more than five participants ( oligopoly ) in the selection of potential customers ( evoked set ). Often not compare " regular customers " due to their strong customer loyalty and watch competitors only when dissatisfaction with their regular suppliers ( imperfect market ).

On the demand side competition occurs whenever there is a scarce resource (ie, in the normal economy always). Competition on the demand side can be organized, for example in ( overt or covert ) auctions, or ( when specified by the seller about the price of an apartment ) by rapid commitments.

While the classical theory of competition aims to divide the existing market among market participants, is now increasingly studied in theory, under what conditions and by what means an endogenous growth of the existing market can be achieved. This can be accomplished by the focus of attention is shifted from the supply to the demand side. By examining the factors that create value for the buyer and the deliberate combination of elements from different markets can be designed new offers that open up new potential demand and thus the classical zero - sum game override (W. Chan Kim and Renée Maubeorgne: "Blue Ocean Strategy ").

Competitive advantages

To gain competitive advantage over the competition, is the desire of all goods and / or service-providing market participants. These competitive advantages can be achieved through price advantages, but also lie in the particular quality of the products or services. Depending on the focus in the company policy or competition policy consideration price competition and quality competition ( performance competition ) are accordingly distinguished, which can never be completely independent of each other, of course. For example, punctuality, friendliness of staff, reliability commitments, availability of products, wide range, goodwill, etc. represent advantages in quality competition and establish a high level of customer loyalty. Enjoying a product or a vendor particular confidence regarding some or many of these characteristics, it is called sometimes - not quite accurate - of a strong brand, regardless of the existence of a legal trademark protection.

In the Study of commerce observation plays a role that trading companies often achieve less by price and quality policy a competitive advantage, but rather through better information management, ie both more accurate and faster information acquisition through differentiated and targeted information delivery, specifically addressed each of their four markets ( sales, procurement, competition and internal market market). Trading companies therefore typically attempt to obtain benefits from their competition through market -specific information information policy ( Schenk). In hardly any other industry, the composite formation of independent trade companies has also proved to trade cooperations as a competitive advantage. From the purchasing groups and purchasing cooperatives were initially established strong competitive marketing communities of trade over time. Large parts of the specialized trade would be without professional cooperative marketing strategies and tactics, ranging from Community Shopping on own brands and joint promotions to cooperative staff training, remained barely competitive. Here are the trade associations of commerce and their member companies in a complex relationship of competition, namely the same time. Interorganisationalem in group competition and in intraorganisationalem, interorganisationalem and organisationsexternem individual event

Competitive advantages can be basically divided into three categories

Competing species

• Full or long shot competition
• Product form competition
• Corporate competition
• Product Category competing
• Types of product competition
• Brand competition
• Distribution channels, competition
• Substitution competition
• Invitation competition
• Operation form competition