What is Competition (economics)?
In [[economics]], the word '''competition''' means that there are at least two competitors (¨players¨) who want to get a share of a [[market]]. The market is divided between all the economic players; this means that if a player gets a higher market share, another player will get a smaller share of the market. In his work, [[The Wealth of Nations]], [[Adam Smith]] says that all players uses the resources they have so that they will get the most profit from these resources. According to Smith, this encourages efficiency. [[Game theory]] looks at competition, from a [[mathematics|mathematical]] point of view. ==Different forms of competition== # Products that perform the same function, and that are interchangeable, compete against each other; this is known as '''Direct competition''' # Products that are [[substitute]]s compete; an example might be [[butter]] competing with [[margarine]] # The broadest form is usually called budget competition: People have an amount of money they can spend each month; all the different products the consumers spend their money on, in a given month compete with each other. ==Limiting competition== Note that competition does not necessarily involve different companies; in the 1920s, [[General Motors]] had divisions that overlapped, and that competed for resources. [[Procter & Gamble]] introduced the competition between different brands in the 1930s. Also note that competition is limited: In some areas, there are [[monopoly|monopolies]], often granted by the state. The state may also apply [[tax]]es or pay [[subsidy|subsidies]] as a way to [[protectionism|protect]] its own economy. Other factors that limit competition include the existence of [[cartel]]s. [[Category:Economics]] {{stub}}