Competition (economics) facts for kids

In economics, competition means that different businesses or people are trying to get the same customers or resources. Think of it like a race where everyone wants to win a prize, which in this case is a share of the market. If one business gets more customers, another business might get fewer.

A famous thinker named Adam Smith said that when businesses compete, they try their best to use their resources wisely. This helps them make the most profit. He believed this competition makes businesses work better and more efficiently.

Scientists who study Game theory also look at competition. They use math to understand how different players make decisions when they are competing.

What are the different types of competition?

Competition can show up in different ways. Here are some main types:

• Direct competition: This is when products that do the exact same job compete. They are interchangeable, meaning you can easily swap one for the other. For example, two different brands of smartphones are in direct competition.
• Substitute competition: This happens when products that can be used instead of each other compete. They don't do the exact same thing, but they can meet the same need. An example is butter competing with margarine. Both are used for spreading or cooking, but they are different products.
• Budget competition: This is the widest type of competition. Everyone has a limited amount of money to spend each month. All the different things people spend their money on compete for that money. For example, buying a new video game competes with buying new clothes or going to the movies.

How is competition sometimes limited?

Competition doesn't always happen between completely different companies. For example, in the 1920s, General Motors had different parts of its own company that competed with each other for resources. Later, in the 1930s, Procter & Gamble started having different brands of their own products compete against each other.

Sometimes, competition is limited in bigger ways:

• Monopolies: In some areas, only one company is allowed to sell a certain product or service. This is called a monopoly. Governments sometimes allow these, especially for things like public utilities.
• Government actions: Governments can also limit competition. They might add taxes to imported goods or give subsidies (financial help) to local businesses. This is called protectionism and helps protect their own country's economy.
• Cartels: Sometimes, different companies secretly agree not to compete with each other. They might agree on prices or how much to produce. This is called a cartel and is usually against the law because it harms fair competition.

Images for kids

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  In 1885, two companies advertised their ore concentrators right next to each other. The lower ad said their machine was cheaper and worked better. This shows how businesses compete on price and quality.

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  Airlines like Swiss and SAS compete to fly passengers between Europe and Japan.

See also

In Spanish: Competencia (economía) para niños