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Why is competition touted as the foundation upon which capitalism is justified?

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"(1) Competition, in business, is the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms. Seen as the pillar of capitalism in that it may stimulate innovation, encourage efficiency, or drive down prices, competition is touted as the foundation upon which capitalism is justified. According to microeconomic theory, no system of resource allocation is more efficient than pure competition. Competition, according to the theory, causes commercial firms to develop new products, services, and technologies. This gives consumers greater selection and better products. The greater selection typically causes lower prices for the products compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly)."

Is it because it may stimulate innovation, encourage efficiency, or drive down prices?

For learning: English
Base language: English
Category: Language

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    It sounds like a dog chasing its own tail.

    Unfortunately, it's just a theory, and rarely works in practise. In practise, the larger company will buy out the smaller innovative company, and shut it down before it can start to affect the profits of the larger, greedier company. Alternatively, companies will collude to offer their products at a higher price, rather than competing to sell at a lower price. That way, they can maximise profits, without having to spend money on innovating, or reducing their prices.

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