Competition arises when firms fight for customers by offering them a better deal in terms of price, quality, range, reliability or associated services. It is messy. Some firms lose market share and others exit. Successful firms can make substantial profits. The reward for consumers is that it gives them products they want and at a price that reflects the resource cost of providing them. This book is about how competition policy is used to maintain competition in European markets. Such policies are effective when they stimulate competition but counterproductive if they stifle it. This is a tricky balance to achieve. It requires a subtle understanding of competition economics.
The first three sections of this chapter start from a satellite picture of the economic system and progressively zoom in on the detail of individual markets and business practices. Section 1 introduces the merits of competition as the fundamental force driving the economy in the right direction. It also notes the temptation for businesses to suppress competition, though this is not always easy to do. How can we identify when business practices are likely to be harmful? And how can we balance such dangers against heavy-handed suppression of efficient and innovative strategies? The branch of economics that has developed this understanding is known as industrial organisation. It focuses on individual market outcomes and provides the intellectual foundation for what has become known as the economic (or effects-based) approach to competition policy.