COMPETITION

Competition is the term used by economists to describe the nature of the relationship between businesses vying against each other to sell their goods and services to consumers. McDonald's and General Motors do not compete with each other because a consumer's decision to buy a hamburger has no affect on his or her decision to buy a car. However, McDonald's and Burger King are competitors because a consumer's decision to dine at one involves a de facto decision not to dine at the other.

Economists have defined three major types of competition: perfect, monopolistic, and oligopolistic. The trout fishing industry is an example of perfect competition because trout are interchangeable as products, so trout fishing firms can only compete with each other by lowering prices. The computer operating system industry is an example of monopolistic competition because consumers purchase software programs that can only work on a single (firm's) computer operating system, (e.g., Windows, OS/2, Linex, etc). The automotive industry is an example of oligopolistic competition because there are only a handful of competing firms, the cost to break into the industry is prohibitive, and if one firm lowers its prices the others will automatically lower theirs. Oligopolistic firms, therefore, compete through advertising and customer loyalty.

Prior to 1815, U.S. businesses cooperated with each other to compete against the market outside the United States. Because of their religious beliefs, the harsh conditions of colonial life, and the sociallyoriented economic philosophy the United States had inherited from England, early U.S. entrepreneurs banded together to work out a "fair" price for their goods. From about 1815 to the end of the nineteenth century, however, advances in manufacturing, communication, and transportation technologies created economic capitals like New York and Chicago. Powerful new industries were born that opened up a huge new national marketplace where competing firms could gain advantage by undercutting each other's prices. This long period of industrial, price-driven competition led to the third age of U.S. competition and the birth of the corporation. By combining oil and steel firms, industrial leaders like J. P. Morgan (1837–1913), John D. Rockefeller (1839–1937), and Andrew Carnegie (1835–1919) built huge monopolistic enterprises that sought to manage prices and control competitive chaos. In the twentieth century, the federal government played a significant role in breaking up these monopolies and managing the economy. Of note, the emergence of the personal computer and Internet industries during the 1980s and 1990s seemed to herald a partial return to the spirit of competition of the nineteenth century.

See also: Capitalism, Andrew Carnegie, Free Enterprise, Monopolies, J. P. Morgan, John D. Rockefeller, Trusts