Competition is significant to us given that our society is capitalistic. The absence of competition between companies in the market may not drive firms to create better products for their consumers. It is the work of competition to keep the market prices low or moderate as it gives consumers varieties of goods to choose from (Perez, 2017). Additionally, competition always has its ways of improving existing products and generating innovations that are new in the market (Perez, 2017). Therefore, our focus is mainly going to be on the effects of the lack of competition and how the government can intervene to assist the situation.
Impacts of Lack of Competition in The Market
Competition in a market has led to the following outcomes, low product prices, a better technology, discipline on producers and suppliers in holding down the costs of products, giving more alternatives of products, better quality services to customers, increased pace of invention innovation and better information for customers to help them while making choices on the purchase (Perez, 2017). This indicates the value of competition in market flow. For the market to be considered competitive, there has to be fairness in the competition in terms of products and service delivery (Perez, 2017). The cycle of business should be balanced in favor of both the producers and consumers.
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Unfortunately, not all the firms are constrained by the tight competition in the markets. When such firms experience this, they end up not acting in excellent social ways required by-laws regulating the business environment. One of the cases depicting such extreme behaviours is a monopoly, which is the situation where only one firm or industry is in existence. This means that there is no competition whatsoever. Monopolies record the worst cases of exploitation by restricting the output of goods and services to higher the prices and increase their profits (Perez, 2017). These acts mostly affect consumers and may even go unnoticed unless the government decides to create an intervention. Oligopoly is a less-extreme case of lack of competition in the market because only a few markets are present in the industry and not one (Perez, 2017). In this case, industries usually agree not to compete against each other so that they can maintain their high prices.
The Role of Government in Markets
The role of the government is to create a framework that ensures the existence of a fair and competitive market. From the very start, the government should be responsible for the establishment of rules of law that creates property rights, ensures contracts are upheld, and setting up institutions that monitor the proper functioning of the markets (Curriculum Development Department, 2018). The establishment competition and consumer law framework by the government will ensure that firms are not exploiting the power of the market, and it protects consumers from unfair prices (Curriculum Development Department, 2018). Unfortunately, government intervention may not necessarily benefit the wider public but the industry through the promotion of inefficiency by restricting competition and purely concentrate on the supply-side of the market.
Generally, measures that directly limit the level of competition in a market are not possibly the best tools to be considered. Luckily, the government has options to create effects in the market by either participating directly or indirectly through private sectors (Curriculum Development Department, 2018). This is because it has to frequently choose between traditional measures and market-based approaches which come with their pros and cons depending on whichever the way the government has decided (Curriculum Development Department, 2018). The majority of these interventions always have unforeseen drawbacks in which if failed to be addressed earlier, may result in indirect costs and spillovers that can impose an unnecessary economic burden.
In conclusion, competition is a very vital part of every business environment since it encompasses society at large because they are the people that feel the effects of market change. It is good to note that the market can either change positively or take a negative turn considering the economy of the state. This is why government intervention comes in to prevent the exploitation of its citizens.
References
Curriculum Development Department. July 3, 2018. ECN206 Macroeconomics W3 - The Role of Government. [YouTube]. https://www.youtube.com/watch?v=3pMH92xGPTA&feature=youtu.be .
Perez, N. (2017). Competitive Management Strategies. Pan African Institute for Development. file:///C:/Users/Belfer%20Consulting/Downloads/INTRODUCTION_TO_BUSINESS_COMPETITION.pdf
