competition policy in business environment
Competition policy‟ is the combined effect of all government policies that influence the level of competition in markets. Many factors influence the level of competition, and a holistic approach is needed to assess it. . Barriers to competition stemming from inappropriate government policies or anti-competitive behaviour by firms are common in developing countries. They diminish opportunities for innovation and growth, and make consumers worse off. Markets are often dominated by big business with close ties to government, and more effective competition reduces opportunities for corruption and creates more space for entrepreneurs and SMEs to grow.
Competitive public procurement increases the effectiveness of expenditure on publicly provided services, such as education and infrastructure. Effective and fair competition is not automatic. Sound competition policy can help markets work better, and is a key part of the investment climate that can help investor confidence, and provide a level playing field for domestic SMEs.
For markets to remain competitive there should be no unnecessary entry barriers, so that new firms can enter when they see business opportunities1. Barriers to exit should not be excessive, to allow firms to leave markets when they are unable to operate effectively. An effective competition policy should safeguard the rights of entrepreneurs to enter and to leave markets.
Objective of competition policy
Competition policy‟ is the combined effect of all government policies that influence the level of competition in markets. Many factors influence the level of competition, and a holistic approach is needed to assess it. . Barriers to competition stemming from inappropriate government policies or anti-competitive behaviour by firms are common in developing countries. They diminish opportunities for innovation and growth, and make consumers worse off. Markets are often dominated by big business with close ties to government, and more effective competition reduces opportunities for corruption and creates more space for entrepreneurs and SMEs to grow.
Competitive public procurement increases the effectiveness of expenditure on publicly provided services, such as education and infrastructure. Effective and fair competition is not automatic. Sound competition policy can help markets work better, and is a key part of the investment climate that can help investor confidence, and provide a level playing field for domestic SMEs.
For markets to remain competitive there should be no unnecessary entry barriers, so that new firms can enter when they see business opportunities1. Barriers to exit should not be excessive, to allow firms to leave markets when they are unable to operate effectively. An effective competition policy should safeguard the rights of entrepreneurs to enter and to leave markets.
Objective of competition policy
- Economic efficiency: Economic efficiency refers to the effective useand allocation of the economy's resources. Competition tends to bring about enhanced efficiency, in both a static and a dynamicsense, by disciplining firms to produce at the lowest possible cost and pass these cost savings on to consumers, and motivating firms to undertake research and development to meet customer needs.
- Economic growth and development: Economic growth–the increase in the value of goods and services produced by an economy – is a key indicator of economic development. Economic development refers to a broader definition of an economy's well-being, including employment growth, literacy and mortality rates and other measures of quality of life. Competition may bring about greater economic growth and development through improvements in economic efficiency and the reduction of wastage in the production of goods and services. The market is therefore able to more rapidly reallocate resources, improve productivity and attain a higher levelof economic growth. Over time, sustained economic growth tends to lead to an enhanced quality of life and greater economic development.
- Consumer Welfare: Competition policy contributes to economic growth to the ultimate benefit of consumers, in terms of better choice (new products), better quality and lower prices. Consumer welfare protection may be required in order to redress a perceived imbalance between the market power of consumers and producers.The imbalance between consumers and producers may stem from market failures such as information asymmetries, the lack of bargaining position towards producers and high transaction costs.Competition policy may serve as a complement to consumer protection policies to address such market failures.
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