Course: IDS B05
Date: December 3rd, 2007
24. Review the main ways in which larger firms compete with smaller ones (or even with each other) in ways which are socially damaging. (As a prelude to this review, discuss when and why competition among firms can be socially useful.)
The Cost of Unfair Competition
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profit so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud”
-Milton Friedman
The environment in which businesses exist and compete in defines the success and the life span of those businesses. We all know that this environment can take many forms depending on the certain good that is produced of its market. A market can be one that is a monopoly, in which one firm controls all the production of a certain good; an oligopoly, in which a small number of firms control the production of a good; a monopolistic competitive market, where many firms produce a similar product, with little product differentiation; and finally, a market can be a perfectly competitive market, where an extremely large number of firms produce an identical product, giving them no power in differentiation whatsoever. Our focus will be mainly on those firms that compete in monopolistically competitive markets, as it will help us in answering the question that is on our hands, which is how large firms that compete with smaller ones can sometimes be socially damaging.
Competition is without a doubt an essential part of any country’s economy. Being a management student, most of the commerce and e ...