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ECONOMICS
Asked by Edis

Which type of firm faces the most competition and why? Is this good for economic efficiency?

Technically, firms in 'perfect competition' have the most amount of competition because the goods are identical and there are zero barriers to entry or exit. in the real world, that doesn't really exist. Monopolistic competition would have the most amount of competition. These are firms that have low barriers to entry, like the local corner shop. You need to define efficiency before you can answer whether competition is good for economic efficiency. So the answer will always be it depends on what you mean by efficiency. Competition is generally good for prices but too much of it can be bad for innovation. At the same time, zero competition can also be bad for innovation and prices.

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David Mageller

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