Consumers gain lower prices and more choice

1. Rival firms undercutting each other means consumers pay less for the same good than a single seller would charge.
2. Choice widens as well, because firms that cannot win on price try to win by offering something different.
3. Quality and service improve for the same reason, since a firm that treats customers badly watches them leave.
4. Consumers also gain from the innovation competition forces, because a firm standing still is overtaken.

Producers face thinner margins and real pressure

1. The gain for buyers is a cost for sellers, since every price cut comes out of the profit on each unit, as shown in 2.5.2.
2. Firms have to keep investing simply to stay level, which absorbs money that could have been paid out to owners.
3. The least efficient firms close, so competition destroys some businesses and the jobs in them.
4. Some producers do gain, because the efficient ones take the share the failing ones give up.

Competition raises efficiency across the economy

1. Pressure on costs pushes firms to get more output from the same inputs, which is the productivity gain covered in 2.6.2.
2. Resources move away from firms that use them badly towards firms that use them well, which is the allocation described in 2.4.5.
3. Lower unit costs also make UK output more competitive abroad, which feeds the determinants of growth set out in 3.1.5.

Competition carries costs as well as benefits

1. Duplication: several firms each building their own network or advertising against each other uses resources a single supplier would not need.
2. Instability: firms entering and leaving means jobs are less secure than in a protected market.
3. Cost-cutting can go too far, because a firm under price pressure may cut quality, wages or safety rather than waste.
4. Very thin margins can also leave firms without the money to fund research, which is the case sometimes made for larger firms in less competitive markets.

Reaching a judgement on the impact of competition

1. It depends on whether the rivalry is genuine, because firms that agree not to compete deliver none of the benefits while keeping the appearance of a competitive market.
2. It depends on what the firms compete on, since competition on price helps consumers directly while competition on advertising may not.
3. It depends on who you count, because the consumer gain and the producer loss are the same money moving, and the net gain is the efficiency saving on top.
4. It depends on the time period, because the firms that close impose costs now while the efficiency gains build up over years.
5. Overall: competition is on balance good for the economy, because it lowers prices, widens choice and forces resources towards their most productive use, but the benefits fall mainly on consumers while the costs fall on producers and their workers, and none of it happens unless the rivalry is real.