What Are the Advantages & Disadvantages of Economic Competition?

In most economic markets, competition determines how industries operate. Competition among companies is what gives consumers choice, allowing them to select products that fit their budget and needs. Thus, economic competition provides great advantages, but it also comes at a cost. For example, some industries have such a high barrier, or high cost, to enter that one or two key companies control the market.

  1. Primary Advantages

    • Along with the advantage already listed (i.e., choice), economic competition forces companies and countries to increase their efficiency and continually seek ways to improve their production process for maximum efficacy. New business problems and consumer problems are created every day, providing opportunities for companies to innovate new products that solve these problems. Healthy economic competition, when free of monopolies, can also attract investments from other countries, thereby increasing a nation's gross domestic product. A final key advantage of economic competition is that it allows anyone with a specialized skill set to create something better than what the market currently offers and clean up. Many of the large brands with which we are familiar today were started by a small team dedicated to solving a customer pain point.

    Primary Disadvantages

    • Unfortunately, economic competition comes with significant disadvantages. Foremost, investment wealth can be disproportionately allocated into what earns the highest profit, leaving less money for social services, such as police departments, public schools and emergency aid. Countries that outsource their production to companies overseas may partner with suppliers who provide poor working conditions and low wages, exploiting workers and offering inadequate incentives. Some politically minded economists would also argue that a key disadvantage of economic competition is that it reduces the amount of human labor required to produce goods, as machinery replaces assembly jobs once filled by human workers.

    Characteristics of Competitive Economies

    • Competitive economies, more commonly known as market economies, have several defining characteristics. No matter what the circumstances, consumers will find the financial means necessary to purchase products they feel they need. Once they have met these needs, more competitive forces will emerge. Consumers will then spend their surplus money on wants, thus reinforcing social class divisions based on the possession of material items.

    Balancing Advantages and Disadvantages

    • Striking a balance between the advantages and disadvantages of a competitive economy is important because it prevents economic collapse. While these advantages and disadvantages change constantly due to a multitude of market factors and global currency values, the market economy is self-regulating in the sense that when consumers experience too many of its disadvantages, they will shift their attention and spending habits toward, as well as supporting legislation conducive to, its advantages.

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