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Competition - post a photo you've taken of nature >>
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Competition - post a photo you've taken of nature >>

Explain why lack of competition is likely to lead to allocative and productive ineffi

Explain why lack of competition is likely to lead to allocative and productive inefficiency in markets such as the market for energy. 15 marker

can someone help plz!!
If there are plenty of firms within an industry, each one will want to maximise its profit. Hence, the differing firms will attempt to undercut the others on price and in the quality of their service / product in order to draw customers away from them. Consequently, they can earn more revenue and increase their profits. Equally, a firm in an uncompetitive market, such as a monopolist, has no incentive to cut costs because what will customers do? They will continue paying a high price as there is no alternative to their product. This dampens productive efficiency as there will likely be a lack of investment, hence resulting in a little / no decrease in costs. In terms of allocative efficiency, firms in a competitive market will face greater pressure to innovate, continuously improving their product and overall produce goods that are demanded by consumers. Firms who face no competition may still innovate and create new products to exploit for profit, but it is much less likely given the absence of competitive pressure.

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