Economics and business competition

Merriam-Webster defines competition in business as "the effort of two or more parties acting separately to secure the business of a third party by offering the most favorable terms." Seen as the pillar of capitalism in that it may stimulate innovation, hearten efficiency, or drive down prices, competition is touted as the foundation upon which capitalism is justified. According to microeconomic theory, no system of resource allocation is more capable than pure competition. Competition, according to the theory, causes commercial firms to develop new products, services, and technologies. This gives consumers greater selection and better products. The greater selection typically causes lower prices for the products compared to what the price would be if there was no contest or little competition .

However, competition may also lead to wasted effort and to increased costs in some circumstances. Similarly, the sychological effects of competition may result in harm to those involved.