Identify three types of competition that most firms encounte

Identify three types of competition that most firms encounter other than competition from other firms in their industry in their home country. (b) Is it good for the economy to have more competitive markets? Explain. (c) If government industry regulators underestimate the degree of competition in an industry are they likely to over-regulate the industry? Explain.

Solution

A = three types of competition: Internet, Globalization, Monopolistic/Oligopoly

B. Yes. One measure of the welfare that society receives is the relation between consumer surplus and producer surplus (W= CS+PS). This measures the wellbeing of producers and consumers equally. Thus, one of the most significant results in economics is that competitive markets maximize the welfare to society. If either more or less output than the competition level is produced, then welfare to society falls.

C. Yes. If competition is underestimated, then the market will place additional pressure on firms to respond with products and services which provide welfare. An excellent example is telecommunications where the barriers to enter are low in populous areas. In less populated areas (rural) competition in the market has not really occurred, leaving a large gap in welfare, while providing high returns to the existing provider of services --- not considering the preferences of consumers.