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| | An investor in the stock market may want to stay away from companies that are in perfectly competitive markets, because the competition will reduce prices and profits for the companies. But a buyer or consumer prefers a perfect competition because it lowers price and improves quality! | | An investor in the stock market may want to stay away from companies that are in perfectly competitive markets, because the competition will reduce prices and profits for the companies. But a buyer or consumer prefers a perfect competition because it lowers price and improves quality! |
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| | + | If you are the owner of a firm, do you like competition? No, not when other firms are competing against you, because that competition will cause you to lower your prices and lose profit. But you do want want perfect competition among your suppliers, because that will help keep your costs lower. |
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| | + | == Example of Perfect Competition: Sports == |
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| | + | Let's look at sports and see if it qualifies as "perfect competition" among athletes: |
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| | + | 1. Many buyers and sellers? Yes. There are many teams competing for support of fans, and many fans choosing between different teams to support. |
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| | + | 2. Goods that are perfect substitutes? Yes (services in this case). It's easy to stop rooting for the New York Giants and start rooting for another team, such as the New York Jets. |
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| | + | 3. Perfect knowledge in the market? Yes, everyone knows the scores and the ticket prices are published for anyone who is interested. |
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| | + | 4. Perfect mobility of resources? Pretty much "yes" again, as each team has tryouts and participates in a massive draft of college players every year. |
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| | + | But wait, you say, there is only one NFL. It looks like there is perfect competition ''within'' the NFL, but there is no other league that has perfect competition with the NFL. That is true: the NFL itself has little or no competition. There was a USFL that tried to compete against it many years ago, but it failed. In the 1960s, there was an "AFL" that did successfully compete against the NFL, and they merged to form what we call the NFL today. |
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| | + | == Competition and Innovation == |
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| | + | Perfect competition helps being out innovation, as participants seek a clever way to outdo the others. Competition can often motivate and bring out the best in everyone. |
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| | + | Fosbury flop |
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| | <Rule Against Perpetuities> | | <Rule Against Perpetuities> |
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| | <"green" energy: windmills in Penn. and W.Va., solar panels: are they efficient or a waste? Takes 10 years to recoup the cost of installing solar panels on a home> | | <"green" energy: windmills in Penn. and W.Va., solar panels: are they efficient or a waste? Takes 10 years to recoup the cost of installing solar panels on a home> |
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| − | “Today the coach was fired because the team is no longer competitive.” “The problem is that the candidate is no longer competitive in that district.” “The competition was intense for the last remaining tickets to the show.” “The race was very competitive, and the fastest runner won.”
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| − | This class we will discuss “competition”, a term that is familiar to all of you. It is one of the most important terms in all of economics and business. It used to be a big part of school, but has been de-emphasized in the last ten years. Competition still is important in sports.
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| − | Competition has the same meaning in economics as in everyday activities: competition is when several people try to attain the same goal. It could be winning a race or selling a good or service to a potential customer.
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| | Free enterprise is based on competition bringing out the best in business and the lowest prices for consumers. If a price is too high or a business too inefficient, then competition is what brings a competitor along to do better. | | Free enterprise is based on competition bringing out the best in business and the lowest prices for consumers. If a price is too high or a business too inefficient, then competition is what brings a competitor along to do better. |
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| | The system of political competition has worked well. When Chief Justice John Marshall expanded Supreme Court power so much that it invalidated a Georgia law applying to Indian land, President Andrew Jackson refused to enforce the Court’s ruling. A century later President Truman ordered a government takeover of the steel mills, and the Supreme Court asserted its power and blocked him. The competition for power prevents any branch from growing too strong. | | The system of political competition has worked well. When Chief Justice John Marshall expanded Supreme Court power so much that it invalidated a Georgia law applying to Indian land, President Andrew Jackson refused to enforce the Court’s ruling. A century later President Truman ordered a government takeover of the steel mills, and the Supreme Court asserted its power and blocked him. The competition for power prevents any branch from growing too strong. |
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| − | Competition in sports drives participants to their very best. No professional football team has ever won three Super Bowls in a row. Why? Because once a team wins the top prize, then all the other teams worker harder to beat it. The other teams become better due to the strong incentive of competition.
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| − | In 1968, an obscure high-jumper named Dick Fosbury was the object of ridicule because he invented a completely different way of jumping over the bar. Everyone else used the obvious way, whereby the jumper runs and kicks one foot up in order to clear and roll over the bar face down. But Fosbury would run up to bar, twist around and then try to glide over the bar headfirst with his back facing downwards, and his face towards the sky. They called his technique the “Fosbury Flop.” It was a bit of a joke until he stunned the sports world by winning the Olympic gold medal in 1968. Rather than lose, everyone started imitating him and the world record advanced at the double its prior rate. The world record using his technique has skyrocketed to about 8 feet high for men.
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| | The benefits of competition extend even to political campaigns. The presidential race in America is increasingly competitive. So competitive, in fact, that no presidential candidate has won even 50% of the vote from 1992 through 2000. The intense competition tends to keep the power in the hands of the people. A dictator who does not have to face reelection has far more power than an American president does, thanks to this political competition in America. | | The benefits of competition extend even to political campaigns. The presidential race in America is increasingly competitive. So competitive, in fact, that no presidential candidate has won even 50% of the vote from 1992 through 2000. The intense competition tends to keep the power in the hands of the people. A dictator who does not have to face reelection has far more power than an American president does, thanks to this political competition in America. |