Economics of Competition Policy in India: Emerging Issues
Economics of Competition Policy in India: Emerging issues
Rajeev C.Bharathan,
Background
Generally in economics, competition is seen as rivalry among firms for a larger share of the market, which leads to efficiency in production and lower prices for the consumers. Competition can be defined as a process by which cost efficient production is achieved in a structure where entry and exit are easy, a reasonable number of players (producers and consumers are present) and close substitution between products of different players in a given industry exists.
As regards the impact of competition on economic growth there are numerous studies which in essence argue that it has a positive impact .Bayoumi et al. (2004)[1]have estimated that the differences in levels of competition can account for over half of the current gap in GDP per capita between the Euro area and the United States. They conclude that more intense product market competition could help in achieving higher growth and increasing employment rate.
Aghion et al (2001)[2], through an endogenous growth model, show that competition has a positive effect on growth.
I t is often posited that competitive market ensures quality, lowest prices, efficiency in allocation and adequate supplies to consumers. The following three conditions are essential for this to be true:
· Competition: there are a large number of producers supplying the same product, or close substitutes, and no single producer dominates the market place
· Full information: all consumers are fully informed about the options that the market offers them
· Low switching costs: the costs a consumer faces in switching from one option to another is not high enough to deter this switch
However, as the real world markets do not satisfy any one of these conditions’; competitive markets may not exist. The factors responsible include situations where:
1. Producers/Sellers adopt unfair means to restrict competition and hurt other Producers/Sellers
Rajeev C.Bharathan,
Background
Generally in economics, competition is seen as rivalry among firms for a larger share of the market, which leads to efficiency in production and lower prices for the consumers. Competition can be defined as a process by which cost efficient production is achieved in a structure where entry and exit are easy, a reasonable number of players (producers and consumers are present) and close substitution between products of different players in a given industry exists.
As regards the impact of competition on economic growth there are numerous studies which in essence argue that it has a positive impact .Bayoumi et al. (2004)[1]have estimated that the differences in levels of competition can account for over half of the current gap in GDP per capita between the Euro area and the United States. They conclude that more intense product market competition could help in achieving higher growth and increasing employment rate.
Aghion et al (2001)[2], through an endogenous growth model, show that competition has a positive effect on growth.
I t is often posited that competitive market ensures quality, lowest prices, efficiency in allocation and adequate supplies to consumers. The following three conditions are essential for this to be true:
· Competition: there are a large number of producers supplying the same product, or close substitutes, and no single producer dominates the market place
· Full information: all consumers are fully informed about the options that the market offers them
· Low switching costs: the costs a consumer faces in switching from one option to another is not high enough to deter this switch
However, as the real world markets do not satisfy any one of these conditions’; competitive markets may not exist. The factors responsible include situations where:
1. Producers/Sellers adopt unfair means to restrict competition and hurt other Producers/Sellers