Michael de Laine

By Michael de Laine, The Copenhagen Voice, 18 May 2009

Competition is good for society, businesses and consumers as it results in greater wealth, lower prices, higher quality, and a wider choice of products and services, the competition watchdog says.

Competition results in greater wealth, lower prices, higher quality, a wider choice of products and services and improved competitive abilities, the Danish Competition Authority says in a new report ‘Konkurrence - vækst og velstand (Competition - growth and prosperity)’.

“Competition is good for society, businesses and consumers,” the authority says.

In the report, the competition watchdog lists a number of positive effects of competition. As well as motivating businesses to minimise their costs, competition stimulates management and staff to make an extra effort, and it increases innovation through research and development, resulting in new products, new production processes and new services.

“Through their innovation, businesses can differentiate themselves from other businesses,” the authority says. “The businesses are thus better placed than their competitors for a time, until the competitors catch up through their own innovation.”

The effects of competition on productivity are “considerable,” according to the authority, which adds that competition has resulted in price cuts of up to 25% in certain concrete markets.

“One study shows that competition is responsible for 70% of the increase in productivity in businesses,” the watchdog says. “In addition, competition - like macro-economic policies - can explain the difference in productivity between countries. And businesses that are exposed to fierce competition have a higher productivity than businesses in a weak competitive situation.”

New and efficient businesses enter the market, which motivates existing businesses to develop so they are not overtaken by the new ones, while the least efficient businesses die out. This process increases business productivity as a whole.

“Competition promotes the rise and fall of businesses,” the authority says. “Between 10% and 40% of the growth in productivity is due to this ongoing process.”

The competition watchdog points out that effective competition implies clear legislation that is enforced effectively and does not limit competition unnecessarily; markets must be open to both national and international competition.

“A competition law that is enforced effectively reduces the risk that businesses agree to limit competition and that large, dominant businesses squeeze small businesses out of the market, thus harming the competitive situation,” the watchdog says. “The law also prevents businesses growing very large through acquisitions to the detriment of consumers.”

It is vital that the behaviour of the businesses, the consumers and the public sector promotes competition - that there is a good culture of competition, the authority adds.

“Several studies have shown that abolishing laws and rules that limit competition have resulted in higher growth in productivity, lower prices and increased employment in a number of countries,” the competition authority says.

However, the watchdog adds, in the current situation with a global economic crisis, “Competition results in necessary changes in businesses and improved productivity, allowing the businesses to alleviate the consequences of falling international demand and to expand quickly when the downturn reverses. Therefore it is vital not to introduce competition-distorting initiatives or protectionist policies that can extend the crisis.”

For the Danish-language report, ‘Konkurrence - vækst og velstand’ go to:

http://www.ks.dk/service-menu/publikationer/publikationer-2009/konkurrence-vaekst-og-velstsand/