Does competition lead to efficiency
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16
Explanation:
Even when competition increases the second-best action, it may increase the first-best action more. We conclude, therefore, that any claim that product market competition reduces agency costs, and therefore increases the internal efficiency of firms, is not generally true.
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22
Answer:
Economic efficiency – competition will ensure that firms move towards productive efficiency. The threat of competition should lead to a faster rate of technological diffusion, as firms have to be responsive to the changing needs of consumers. This is known as dynamic efficiency.
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