Fair competition is open and equitable competition between businesses. Competition is a fundamental economic force that drives improvement to prices, quality and customer experience. Competition is also the fundamental reason that business is difficult. As such, firms often try to reduce competition with behavior that a society may deem as unacceptable. The following are illustrative examples of fair competition.
Open BiddingA government that procures goods and services using an open process of bidding whereby the most attractive bid is selected. This can be compared with an anti-competitive practice such as a politician who gives contracts to her friends.Firms that set prices independently such that the firm that sets the lowest price may receive more business. This can be compared with the anti-competitive practice of price fixing whereby firms agree amongst each other to maintain high prices.
A system that sets a basic level of quality and terms that all firms must offer customers. For example, a food inspection agency that enforces food safety standards. This can be contrasted with a system where firms are free to mislead customers.A system where anyone can start a business and the government doesn't step in to favor one business or industry over others. This can be contrasted with government intervention in the economy such as bailing out a firm that is in financial distress. This can harm the competitors of the firm or future competitors who would grow to takeover the failed firm's market.
Trade ComplianceNations that comply to the terms of the trade agreements they have signed. This can be contrasted with nations that impose non-tarrif barriers to trade such as bureaucratic regulations and delays that are imposed on a trading partner.
Fair PracticesFair trading practices such as a firm that offers services to its competition as if they were any other customer. This can be contrasted with anti-competitive practices such as refusal to deal whereby a dominant firm damages the competition by refusing them access to essential services. For example, a telecom company that owns television stations that refuses to provide a competing television station with an internet connection.
Independent ProductsOffering customers a flexible menu of products and services without tying one product to another. Practices such as requiring a mobile phone user to use services offered by the manufacturer can be viewed as anti-competitive.
Profitable PricesGenerally speaking, prices set by a firm should be designed to make a profit. Setting prices too low may be viewed as predatory pricing whereby a large firm is able to bankrupt smaller competitors by setting unprofitable prices. With the competition gone, the large firm is then free to raise prices extremely high.
Acquisitions & ImprovementGenerally speaking, a merger or acquisition should be designed to improve a business. A merger or acquisition that is simply designed to remove the competition may be considered anti-competitive.
Strategy IndependenceIt can be viewed as anti-competitive for firms to meet and coordinate their strategies. As an example, consider a nation that has two large milk companies. If they meet to divide the country into regions such that each firm has a monopoly everywhere it operates, this would typically be considered an anti-competitive practice.
Fair TermsFair terms in your agreements with partners and customers. For example, a term that prohibits customers from buying anything from a competitor might be viewed as anti-competitive. Likewise, exclusivity terms with a partner that prevent them from offering products and services to your competition may be considered anti-competitive.
Labor RightsAllowing your employees to quit their job and work where they want as long as they don't give out your secrets to a competitor. Overly restrictive employment contracts or intimidation of employees who quit may be viewed as an anti-competitive.
Exemptions to RegulationsExemptions to regulations for small firms can improve competition by reducing barriers to entry in an industry. Regulations tend to impact small firms far more than large firms as they have limited resources. For example, small firms may be exempt from requirements to produce employer compliance reports. In some cases, they may also be exempt from certain forms of taxation that represent an administrative burden.
SpinoffsA firm that grows to dominate a product category may be considered a monopoly that inhibits healthy competition as the firm has little incentive to improve quality, prices, customer service or terms. Such a firm can reduce this perception by spinning off elements of its business into independent entities. For example, a telecom company that controls much of a nation's IT infrastructure could break itself into regional entities. In some cases, governments force monopolies to break apart into smaller firms.
This is the complete list of articles we have written about competition.
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