Good and Bad Effects of Competition for Large and Small Businesses

Updated on June 16, 2020
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I studied English and received my MA in TESOL. In my spare time, I love writing about business and business management.

Competition can be positive or negative. Read on to see competition's effect on businesses.
Competition can be positive or negative. Read on to see competition's effect on businesses. | Source

The Results of Competition

Competition has drastically affected our world. Competition will be around us no matter what we do. In the past, present, and future it has had an effect on our activities and how we rely on each other. Whether competition relates to sports, betting, business, or any other aspect, it affects our daily lives. Competition is the pinnacle of what makes us what we are. Is all this competition good for businesses? Is it applicable to say that competition, although good for consumers, also has its negative aspects as well? There are many struggles that businesses face due to competition within business, and it has a negative effect on many people. Business competition can drastically harm small businesses through various labor costs, production, and price factors.

The Small Business Struggle

Business competition is hard on small businesses due to the global economy and global competition. Now that there are so many options of hiring, purchasing, and selling on an international level, competition has become even more competitive. This makes it even harder on small businesses trying to make a profit within their trade or services. They have to face more and more businesses and markets and have to worry about trying to beat out their competition. Parts that can be extremely difficult include other companies outsourcing employees. Large companies can easily hire workers online or from other countries and pay the workers a much smaller wage or salary compared to small businesses, who cannot easily access this labor market. Small businesses regulate themselves according to their locations and what is within their range or scope of employment.

Lacking the Benefits or Capital to Expand and Outsource

They do not have all the extra like large companies. One prime example is how we, the United States, purchase many of our goods from China. This is because labor is much cheaper in China and they are able to produce more for a smaller price. This makes it hard on small businesses and even large businesses within the United States who are struggling to factor in all of their costs and have to keep up with foreign rates. Taxes are an extreme hindrance to business and according to the author of Save Your Small Business: 10 Crucial Strategies to Survive Hard times or Close down & Move on, Ralph Warner, taxesneed to be of first priority when calculating revenue deductions. “Your tax obligations are your most important debts because governments are given extraordinary legal powers to collect them.” (Warner 244) He goes on to explain the personal liabilities owners have of their business and why it is important to reduce and pay tax obligations immediately.

Competition During Economic Downturns

Another struggle that businesses face is competition during economic downturns. When an economy plummets, many small businesses pop up from people who decide to become self-employed instead of unemployed. Economic downturns cause a rise in self-employment and create a struggle of people to try to make money. Another aspect of adverse economies is that these new businesses often try to scrounge for whatever money they can and will charge a cheap price for potentially poor work, services, or goods. This makes it hard on small businesses in general because of all the additional businesses stealing potential profits and reducing a particular company’s revenue. In addition, people have less to spend which makes people stingier with their money. Consequentially, this also affects a business’s revenue stream. With all the competition springing up, businesses have to, at times, lower their prices just to strike a profit. Economic downturns can be one of the worst scenarios for small businesses who now have to work harder to break even.

Competitive Loss

Breaking even is not always a possibility and sometimes scenarios of competitive loss occur. Competitive loss is a concept that many businesses struggle with on a continuous basis. This concept pertains to the fact that even though businesses might be working and earning money after all that work, they are still losing revenue. Going backwards is another way to think of it. An analogy that can help would be to imagine rowing a boat heading upstream, but no matter how hard and fast you row the current still pulls you downstream. This is because of other competitors who potentially can, and many times do, run these companies out of business. There are many reasons that this can happen. Many times businesses will offer incentives and benefits to customers if they shop at their store or use their services. The idea of competitive loss or moving backwards is shown most greatly in numerous new small businesses. One reason this is detrimental to small businesses is that they do not have the starting or ongoing continual capital to match larger competitor’s deals and services. Todd A. Knoop, author of Recessions and Depressions: Understanding Business Cycles, mentions the business cycle and how misconceptions can cause a negative outcome. “Mistaken expectations could cause output to fall by 50 percent.”(Knoop 146) This quote explains the idea that sometimes what we think will work can actually cause us to go backward. Factors involved range from bad information, ideas, and misconceptions on the partaking of business operations, which all can cause a competitive loss. With every positive, there is a negative, and although a small business can be more flexible with customers, they cannot afford losing a portion of their money due to trying to match competitor’s deals, specials, etc. Many small businesses do tend to move backward because they start out trying to do too much too quickly and it is within these instances that we see this loss occur due to of their competitions’ effect on their business.

Setting Low Prices

At other times, some companies such as Wal-Mart will set bottom line prices in which every other competitor tries to match their low price. “Effective markets are characterized by healthy competition against a clear bottom line, obsessively pursued in the case of Wal-Mart for example, and its prices.” (Edwards 68) This statement by Michael Edwards proposes that competition is not always a healthy attribute to society, but rather can cause damage to social structure. This is because sometimes, competition can be so competitive that it can damage the economy and that particular society in a severe way. This is a potential risk of harming both the business offering these incentives and its competitors. The risks associated with the business that offers incentives include offering so much that they wind-up losing money in the process. That is why a financial advisor or team of analysts is important if they choose to implement these tactics. The risks for businesses that are in the same field but are not offering these, is that all their customers can turn and head towards the first business where they can get something extra. There are many factors involved in the competition of business and how businesses relate to their customers. It is within these intricacies where businesses face their potential loss and face the most struggles. The more that you try to get into it, the more factors you have to include and worry about in your business. Going backwards is a horrible feeling for businesses; no one wants to work and not make a penny. That is why competitive loss is so devastating and potentially harmful to businesses.

Keep Your Name Out of the Mud

One way to avoid going backwards is to maintain a good image. Competition is everywhere and there is no escaping it. In every aspect of our lives in every day, we see the effect of competition and the rule we play in it. We effect how businesses operate, market, and sell their goods and services, and we are the deciding factors in how well a business does. Business competition and competition in general is usually seen as a good thing. People like to think that competition is good for everyone, but as you can see that is not the case.

Catherine Latterall and Common Assumptions

Catherine Latterall, author of Remix: Reading Composing Culture says it best as she brings up common assumptions. “Competition makes us better.”(Latterall 207) She goes on to elaborate on both good and bad effects of business and proves how people do assume that competition is an assumed good thing. Businesses struggle daily to match goals they set and struggle to stay ahead of the game. However, there are an elite few of businesses who are excelling despite all of the competition. Assumptions of customers is another reason many small business have hardships. Many times people purchasing a good or a service fail to see the value in what they bought. It is hard to recognize all the time and effect that many businesses, especially service businesses, do to create a finished product. It is within this unrecognized effort by businesses that at times they struggle. A small business has to maintain a good self-image or else their business can take a hit and that is why when people assume the worst in these small businesses, the business suffers greatly.

Competition for These Businesses

Most businesses are out there every day worrying if they can survive another year, if they can turn losses into profits. Competition for these businesses, particularly small businesses is one if not the most damaging hits to profits. There are so many aspects of competition that can negatively affect any business and their goals. Companies continually worry about how they manage their employees and deciding whom to hire, fire, layoff, give pay raises to, etc. They have to fight against all other competitors to prove why their small business should be chosen over other businesses on a global scale. Business have to fight for every dollar when times get tight and the economy slows to a halt. On top of all of this, they also have to make sure all their figures are right, comply with all the laws, and follow guidelines to properly maintain a legal business. Doing all of these tasks can be difficult but are manageable if a small business takes the right paths, makes the right decisions, and works hard enough. Small businesses have many barriers but with many hurdles overcome these business can succeed. Although business competition is exceedingly harmful to businesses themselves, we should all be glad that we as consumers can reap the benefits.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


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    • profile image


      2 years ago

      Good qualities of a competition

    • profile image


      2 years ago

      TThis only has bad effects and it does say good and bad in the heading. This was supposed to be used for a business project of mine but I can't do the good effects. Please update this article. Thanks.

    • profile image


      3 years ago

      I like your post B Boy

    • profile image


      3 years ago


    • profile image

      B Boy 

      4 years ago

      I Like your Post.

    • profile image

      pamela orellana 

      5 years ago

      the title of the article says "Good and Bad Effects..." the body of the article mainly focused on the bad. very misleading.

    • profile image


      6 years ago

      sory for asking..

      may i know what is your name please, so that i can use this as my reference in my stdy..



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