3 Competition

“Competition,” wrote Samuel Johnson, “is the act of endeavoring to gain what another endeavors to gain at the same time.” We are all fa­miliar with competition – from childhood games, from sporting con­tests, from trying to be promoted in our jobs. But our familiarity does not tell us how vitally important competition is to the study of eco­nomic life. Competition for scarce resources is the most important concept around which all modern economics is built. Prices, wages, methods of production, which products are produced and in what quantities, the size and organization of business firms, the distribution of resources, and people's incomes all result from competitive pro­cesses.

Let us consider market prices for consumer goods. The baker has on hand a stock of bread, a valuable good for which consumers are will­ing to compete by offering the baker a price. The baker wants to receive the highest price possible, but he is constrained. If he sets his price too high, customers will not buy all that the baker has to sell. They will buy from another baker, or they will buy pizza or potatoes instead. So the baker sets a price that he thinks will help him sell everything he wants to sell. That price is determined by the willingness of customers to com­pete for his product, and by the willingness of rivals to compete for his customers.

The market-clearing price represents the lowest price that buyers must pay, and the highest price that sellers can receive, each without being outbid by rivals. This competitive process fixes the prices of goods and services that consumers want.

Many critics of capitalism and market economies argue that competition is one of the central evils of the system — that the pur­suit of higher profits or higher wages pits people against one an­other, works to reduce cooperation within society, and makes some makes some people better off only at the expense of others. Competition, how­ever, is not the creation or even a by-product of a capitalist or mar­ket system. Competition exists everywhere in nature, and in all eco­nomic systems.

The difference in social systems is not the presence or absence of competition. Instead, the difference is in the type of competition differ­ent systems have. To succeed in some economic systems one must ex­cel in bureaucratic politics, to succeed in other economic systems one must excel in productive efficiency.

Despite its importance to modern economic life, competition is not the solely process in economic activity. The modern market economy is as much a system of cooperation as it is a system of competition. Within the family and within the firm, between the customer and the supplier, we cooperate to achieve our goals. This cooperation is as vital as com­petition to a productive economy.

This kind of competition matters much more than the amount. Competition that takes the form of violence and crimes destroys wealth; competition that takes the form of trying to be more productive creates wealth.

By Jack High