• Competition among sellers drives the equilibrium price in a market down to the supply price and forces sellers to supply the most wanted products at the lowest resource cost.


• Competition among buyers drives the equilibrium price in a market up to the demand price and forces buyers to spend their incomes on the most satisfying goods.


• Competition on both the demand-side and supply-side of the market results in equality between the demand price and the supply price, which is essential for efficiency.

Competition by the Numbers

The Few and The Many

• Competition Among The Few: This form of competition occurs if there are only a handful of participants. Each participant usually knows the other competitors quite well. Many markets operate with competition among the few. In such markets, one seller can gain a competitive advantage by offering a product that is just a little better than the others--not the best product, only a little better product. Such competition seldom leads to an efficient use of resources.

  Competition among the few is like a race between Edgar Millbottom and his buddy Chip Merthington. To win, Edgar only needs to run a little faster than Chip. Edgar does not need to set a world record. Edgar does not need to run his absolute fastest race ever. Edgar only needs to run a little faster than Chip. In fact, if Chip trips and falls, then Edgar wins easily.



• Competition Among The Many: This form of competition occurs if there are hundreds or even thousands of participants. Each participant is lost among the masses. Competition among the many brings out the best, that is, the most efficient use of resources. In this case, the only way for a seller to gain a competitive advantage is to produce the best possible product.

  Competition among the many is like a race among Edgar Millbottom, Chip Merthington, and ten thousand other runners. To win, Edgar needs to do a lot more than run faster than Chip. Edgar needs to run faster than everyone; to be his absolute best. Setting a world record might be needed. Moreover, Edgar cannot count on every other participant in the race to trip and fall.

Market Structures

• Monopoly/Monopsony: One end of the continuum are markets with only one participant, meaning there is no competition. If there is one participant on the selling side of the market, the result is monopoly. If there is one participant on the buying side, the result is monopsony. These two market structures are the antithesis of competition. There is no competition.


• Perfect Competition: At the other end of the continuum are markets with large numbers of participants, both buyers and sellers. The numbers are so large that no one participant can influence the market price in any way. Perfect competition achieves efficiency as the theoretical, ideological benchmark market structure for competition among the many.


• Monopolistic/Monopsonistic Competition: Residing close to perfect competition on the continuum are markets with large numbers of participants, but fall short of the theoretical perfection. If competition is on the selling side of the market, the result is monopolistic competition. If competition is on the buying side, the result is monopsonistic competition. These market structures are the best real world examples of competition among the many. While they do not achieve efficiency, they often come close.


• Oligopoly/Oligopsony: Residing near monopoly/monopsony on the continuum are markets with small numbers of participants, but more than one. If competition is on the selling side of the market, the result is oligopoly. If competition is on the buying side, the result is oligopsony. These market structures are the ones most likely to practice competition among the few. They also tend to have numerous efficiency problems.