The Theory of Competition Policy: an International Synthesis

Abstract

Because of the many forms competition can take, there is no universally accepted definition of it.¹ The basic character of competition in a market economy can be understood as the contention between at least two participants on the supply side and those on the demand side. Competition forces the companies to adjust their supply to correspond to the wishes and needs of their consumers (the regulatory function). In a national economic system the desire to maximize profit produces the dynamic in which the raw materials with the best value are used in production. The end product that offers the best value is in the highest demand and is the most produced, which in turn allows the firm producing it the most room to reduce its prices (the allocation function).²