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Learning about what happens when multiple businesses try to sell the same thing to the same customers.
Imagine you and your friend both open a lemonade stand on the same street corner. If a thirsty neighbor walks by with only one dollar, how do you make sure they choose YOUR lemonade instead of your friend's?
In economics, competition is like a friendly race. It happens when two or more businesses try to sell the same types of goods or services to the same group of people. These businesses are called rivals or competitors.
Think about it: if you want a new pair of sneakers, you have many choices. You could go to Nike, Adidas, or a local shoe store. Because all these stores want your money, they are in competition. They aren't just selling shoes; they are competing for you! To win the 'race,' businesses must find ways to be better than their rivals.
Quick Check
If a toy store and a grocery store are next to each other, are they competitors?
Answer
Usually no, because they sell different things to meet different needs. Competition happens when businesses sell similar items.
Businesses use different 'tools' to attract more customers than their rivals. The most common tool is price. If Store A sells a game for $\$20\, most customers will choose Store B because $\$18 < \.
But price isn't the only way to win! Businesses also compete on quality (making a better product) and service (being nicer or faster). They might also use incentives, like giving away a free sticker with every purchase. This 'battle' for customers is what keeps businesses working hard every day.
Let's look at two pizza shops on the same block:
1. Pizza Palace sells a large slice for $\$3.00\ but adds extra cheese for free.
In this scenario, the shops are competing. Pizza Palace is competing using a lower price, while Slice Heaven is competing using better quality (more cheese!).
Quick Check
If a store sees its rival lowering prices, what is one thing it might do to keep its customers?
Answer
It might lower its own prices even more, or offer a better version of the product.
Competition isn't just good for businesses; it's great for consumers (the people who buy things). When businesses compete, they are forced to keep their prices as low as possible to keep you from going to their rival.
Without competition, a business could charge whatever they wanted! Imagine if there was only one gas station in the whole world. They could charge $\$50$ for a gallon of gas, and you would have to pay it. But because there are many gas stations, they must keep prices fair. Competition also leads to innovation, which is when businesses invent new and better things to stay ahead of the pack.
Imagine two companies, 'GameBox' and 'PlaySphere.' 1. GameBox releases a console that plays movies. 2. To compete, PlaySphere creates a console that plays movies and connects to the internet. 3. GameBox then invents a controller that moves with your body.
This back-and-forth is competition! Because they want your business, they keep inventing cooler technology for you to enjoy.
A town has only one bakery. The baker charges $\$10\ for the same bread.
2. The first baker drops their price to $\$4$ to get customers back.
3. The second baker starts offering free delivery.
If the first baker goes out of business and the second baker is the only one left again, what do you think will happen to the price of bread? It will likely go back up because there is no more competition!
Which of these is the best definition of economic competition?
If Store A sells a shirt for $\$15\, which store is likely to get more customers?
Competition usually leads to higher prices for consumers.
Review Tomorrow
Tomorrow, try to name three pairs of competing businesses you saw while driving or walking through your town.
Practice Activity
The Grocery Store Challenge: Next time you are at the store, find two different brands of cereal. List one reason (like price or a cool box) why a customer might choose one over the other.