What is competition and how does competition help firms to operate at their optimum level?

The term competition refers to two or more organizations or firms competing in the same marketplace for the same consumer dollar. Competition varies from that of being monopolistic, oligopolistic to that of being perfect or pure. The competitiveness of firms is severely undermined by the high cost of debt service and working capital. These costs affect the total budgetary outlay displacing expenditure in critical areas of infrastructure and human resource development. This has negative consequences for investment and growth in both the short term and long term. Sluggishness in economic activity results in slow revenue growth, further limiting the firm’s ability to provide basic goods and services to effectively compete in the marketplace. The firm’s economic strategies therefore will always be geared toward encouraging investment, increasing output, creating jobs, improving productivity and achieving international competitiveness.

Firms compete constantly on the basis of price, quality of goods and service, demand for goods and service and the supply of goods and services.

To distinguish who is competing with whom in the marketplace it is necessary to distinguish between the behaviour of individual firms, and the type of market in which the firm operates. This degree of competitive behaviour conjures on the degree to which individual firms indulge in active competition with one another. For a firm to garner competitive market structure it has to be the dominant player in the market, and pushes the other players to accept the forces of market demand and supply. In this regard the firm is assumed to be a price-taker, which is referred to as perfect competition.

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