In an economically prosperous society, competition amongst independent companies enhances economic stability and growth. However, in such industrial and capitalist societies, the competition features become integral to the survival and attainment of a business's value and its stability. In maintaining acceptance, businesses seize different means to compete with "rival" groups or businesses.
Economics, as a field of the study, reveals competition to be a condition where several economic groups strive to obtain the interest on limited goods by ensuring elemental marketing mix for their customers and (generally) the public. The marketing mix occurs through pricing, product type, branding, promotion, and place at which such business is situated. However, there are many means to compete but cutthroat competition is often a means to a destructive end.
Many business and economic firms compete with others via the price of products, the kind of product produced, the branding, and the place such good is rendered. Thus, competition enhances the motivation for producers to incorporate more innovative techniques to develop new products. This provides consumers the luxury to choose better products out of the many products available. This further makes the price for the most selected product reduce considerably with or without incurring a loss.
However, as against early economic competition which involves differences only in price and non-price based competition, the cutthroat competition is more aggressive. The cutthroat competition “refers to situations where competition results in prices that do not chronically… cover costs of production, particularly fixed cost”, 1993, Glossary of Industrial Organization and Competition Law.
This explains that cutthroat competition in business is a means through which competitors attempt to eliminate others (especially rival groups) from businesses through destructive practices. This is why cutthroat competition is otherwise known as destructive or ruinous competition. Most times, a company attracts customers through every means which can be destructive and possess potential means to eliminate smaller businesses.
The competition includes offering heavy discounts to the general public against the natural worth and pricing of goods; reduction of prices below the cost which thus compensate buyers and satisfies sellers' need for competition. The reduction of prices below the cost is destructive because it cannot be sustained for a long period and it embodies stiff competition.
In a scenario where an already advanced company reduces the price of the gas in an area, consumers have a high tendency to consult the gas station than other stations where the pump remains the primary price. As expressed above, this reduction is unsustainable but for the time being, businesses that cannot survive such competition are out of business while the rival takes over the place.
In many circumstances, producers offer equivalent goods and services; they also have the same target customers. Hence, many companies select the option of eliminating other companies to achieve their economic desires and attract customers to themselves. These features employing the ruinous competition means.
There are numerous reasons why companies engage in cutthroat competitions:
- The seasonal reduction in demand for a particular product: during a particular period, producers have to grapple the environment to retain profit and remain relevant in business. They thus predate on other businesses in a bid to eliminate them and have the public to themselves.
- Persistent reduction in demand as a result of technological change or unexpected regulatory policies. When this occurs, some small businesses or companies close down while some remain in business. However, those businesses which closed down would often try to gather scraps of what is left to establish another business for the market economy.
- Low entry barriers in the market: for instance, there is a wholly international free market and exchange of goods and services without enormous taxes. This will feature huge competition and new players (perhaps from the black market) would enter the international market with new money. This would be a means to intimidate existing companies and could result in an aggressive competition to either remain in business o out of business.
- Creation of new products and services: during competitions, companies become innovated to develop new products. Most times, they exceptionally brand the same product and add distinct features to make it marketable and attractive to customers. When this happens, supply exceeds demand in the market and this causes competition. Companies begin to inventory and sell their products at discount prices which could lead to cutthroat competition. This equates that other businesses that cannot afford such discounts for consumers would be pushed out of business inevitably.
According to the Organization for Economic Co-operation and Development, the destructive competition argument is often advanced to advocate government intervention in the form of price regulation or stabilization and structural rationalization. This means that when the cutthroat competition actively reflects destructive policies, only government regulatory bodies can create a rational form of regulation to stabilize the market and restore economic order.
The competition term is also used in labor law, consumer protection regulation, and enforcement of competition law which has started since the late 19th century and early 20th century. This reveals that economic competition is legal without stiff destructive practices against other companies. Although many countries employ strict legislation against the cutthroat competition and the competitive pricing practices, many other countries rationalize that bargain and pricing agreement doesn’t validate competition.
However, to survive cutthroat competition, Sasha Karen (2017) suggests that determination and continuous growth and innovation would enhance survival in a saturated market. She further reveals that taking full control of a particular niche by an individual or company would assist in handling competition and staying in the market. Further, staying in the market during cutthroat competition requires having an end goal fixed in the mind.
Tom Grills (2015), views that established businesses and startup enterprises will answer differently to whether cutthroat competition in business is the key to business success or not. However, “while innovation was a recipe for winning, the innovation tended to be more short-term focused”. He adds that “to do something truly transformative, one needs to go boldly where no man has gone before”. Through this, competition becomes a transformative challenge and not just a means to push others out of business destructively.
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