Competition in technology development

The first thing that comes to many people's mind about competitions between companies is price competition. In economics, a perfectly competitive market is where all suppliers have uniform costs and are selling their products at prices which equal to their costs. However, this is not very realistic. Suppliers often have different costs caused by various factors. For example, a local supplier may have a higher production cost but no transportation cost, and a large supplier has a lower production cost due to its mass production but a higher transportation cost, the two suppliers may have similar but not exactly same costs. Of course, these two suppliers can still compete with each other by lowering their prices, but this strategy is not sustainable and may lead to an ill competition strategy, dumping.

Price competition is not going to generate profits and may cause losses until winning the market power. I think that in the real world, especially in the technology sector, firms are competing with each other from a different aspect, technology. Competing in technology has several advantages which price competition will never have. First, technology competition does not fully prevent firms from making profits. When firms are developing new technology, they may not end with exactly same technology, so their products are differentiated, and they are not necessary to launch a direct competition with each other. Moreover, because their products are different, it is reasonable for them to set up different prices which can possible generate profits for them for their products. Secondly, technology dominance is easier to maintain. Both price competition and technology competition both aim to win more market shares, but technology is able to achieve a more dominant win. The dominated position by winning a price competition is easily broken by a technological breakthrough that significantly lowers production costs. However, the dominated position won in a technology competition is much harder to be brought down. Thirdly, technology competition can help newcomers to bring down traditional incumbents. Consumers could be surprised about new technology, and change their previous preferences, the most classical example is iPhone which has complete changed people's preferences about the mobile phone they want and brought down Nokia's position in the mobile phone sector. Fourthly, technology competition is more appealing to investors. Competition requires lots of cash, so it is important to have investors' support. Investment in technological development is more likely to gain support from investors because of the previous advantages. Moreover, investors love investing in innovative companies, investing in technology at least make companies seem to be innovative.

Overall, I think that more and more companies will participate in technology competitions, because it can generate greater profits and accumulate market power by building up technology barriers.