Competition can be a strong motivator for business success. It is not uncommon f

Question

Competition can be a strong motivator for business success. It is not uncommon for two or three key players to dominate an industry. These players often make it harder for new entrants to come in. Sometimes the rivalry between businesses is so strong that their entire focus is destroying the competition. When this occurs, businesses can fail to consider the threat of newer entrants and even face legal consequences. One of the largest business rivalries is between Coca-Cola and Pepsi. For years, these two players dominated the industry. However, as soda sales began to flatten, competitors emerged to take advantage of new trends. Red Bull tapped into the energy drink market. Red Bull is not known for its good taste. Yet with its focus and branding on extreme sports, Red Bull surpassed Pepsi in brand value. Businesses must not get distracted from the possibility of newer competitors.

Based on this information above, why is competition important in a capitalist economy?

Explanation / Answer

Competition is important in a capitalist economy, because it makes firms to always strive for innovative products, to tap the new trends and preferences and make continuous efforts to satisfy the emerging demand among the target audience. It helps the firms to remain competitive and hold the market share intact.
A capitalist economy is driven by the market forces and it is the demand forces that give direction to supply. A presence of competition, makes the firms to become more efficient and offer quality products. So, it benefits the consumers and firms get a foothold. It creates opportunity for the new firms also like Red Bull to innovate, rather one firm tries to nullify the another firm. Hence, due to competition, the focus of attention of the firms, is consumers and their demand, rather another firm.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.