Does the economic principle of competition apply in both private and public organizations? 

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The question of whether the economic principle of competition applies in both private and public organizations can be read in two ways. Perhaps it makes the distinction between companies that operate in the public sector—in other words, government organizations versus private sector entities. It could also be referring to non-government companies but distinguishing between ones that are privately held versus publicly-traded corporations.

In either case, the economic principle of competition applies as it generally does, with a few exceptions. Both private and public organizations need to remain relevant, freshen their service and product offerings frequently, and be responsive to their customers' changing needs.

If they do not remain relevant and update their services or product offerings in response to their customers, they risk having more agile and customer-friendly market entrant swoop in and gain market share at their expense.

There are only a few instances where this is not true. One instance is when government regulations are either too onerous or simply do not allow new market entrants. In an economy that is not controlled, this does not happen often. However, if we look at the taxi industry in New York City, we do see an example of an industry where the government regulated the ability of new players to enter the market by mandating that taxi companies purchase city-issued medallions that were both costly and limited in number. The scarcity of the medallions contributed to their value in a strong secondary market for newcomers that wanted to enter the market. With the entrance of ride-sharing services such as Uber, Lyft, Via, and others, the competitive landscape changed dramatically, driving down the value of the medallions.

However, in sectors where there are not government controls restricting new entrants, companies that operate within the market must remain competitive in order to stay in business, and it does not matter if they are privately held or have stock owned by the public (although public players generally have greater access to capital that, in turn, helps them remain competitive).

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Competition is stronger in the private sector. Businesses compete for the consumer's dollar by offering superior products at lower prices than their competitors. The consumer awards the winner of these competitions by giving him or her their business. Businesses who are successful over the long-term can grow and even buy out their less successful competition. One example of this type of competition is the car industry. By offering lower-cost models, Henry Ford was able to drive out many of his competitors, such as Packard.

Competition exists in the public sector as well. Governmental departments compete for tax dollars. Branches of the military look for new innovations in order to attract more funding at the expense of the other branches. Local and state officials make their case in governmental meetings that their own pet projects are worthy of funding. Not only do these projects help their constituents in the short-term, but they also create local jobs that help the lawmaker stay in power.

There are times when the public and private worlds compete with one another. Public and private schools compete with one another for students by offering better academics and extracurricular programs. When the state contracts projects out to the private sector, vendors compete by offering the state the best possible deal. In an ideal world, these contracts are negotiated openly so that no one receives an unfair advantage.

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The question--does the economic principle of competition apply in both private and public organizations--is vague with regard to the definition of "public organizations." While that term, "public organizations," can be assumed to refer to government agencies, it can also be applied to publicly held non-governmental organizations and to non-profit organizations. For the purposes of this discussion, it will be assumed that the intended definition is government agencies.

The principle of competition is much more limited in the public than in the private sector for the very obvious reason that public or government agencies exist to serve a single or narrowly defined set of responsibilities, such as oversight of private organizations or the administration of public welfare services (e.g. the Social Security Administration). That being the case, opportunities for competition are obviously restrained. Public utilities represent the most common example of organizations that are understood to be immune from the pressures of competition, although the most prominent example, telephone service, ceased to exist as an example with the introduction of the Internet and cell phones.

There does exist one area in which competition among public sector organizations does exist and functions reasonably well: state-owned universities. States maintain university systems spread out among major cities and towns. While colleges and universities mostly draw students from local and surrounding areas, they also compete for students from other states as well as from within the state. However, while this does constitute competition, it does not really occur within the economic model applied to the private sector. Tuition fees, for example, are set by the state legislature, and funding for infrastructure and facilities is budgeted through the state using taxpayer dollars. Competition, then, comes from each academic institution's ability to offer programs and, occasionally, financial aid packages unavailable at competing institutions.

Government agencies can also compete among themselves in other areas, such as financial services. Fannie Mae and Freddie Mac, for example, competed directly for the home mortgage market. While these two organizations are technically known as Government-Sponsored Enterprises (GSEs)--in effect, private entities created and overseen by the government--they qualify as public entities for the purposes of this discussion. How well that competition turned out is the subject of considerable debate since the housing crisis of 2007–2008, but the two entities did directly compete.

Competition is a cornerstone of a free-market economy. It cannot, however, function in a regulatory vacuum, or compete head-on with publicly funded entities, such as government agencies. Competition among public organizations is, by necessity and definition, extremely limited.

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The principle of competition applies to individuals within both private and public organizations.  However, it applies to private organizations much more than to public organizations.

People in public organizations must often compete against one another.  Not all of the planners in a city planning department (a public organization) can become the senior planner or the planning director.  They must compete to get the best jobs.  This, of course, happens to people in private organizations as they compete for promotions.

Private organizations must compete with one another for customers.  Two restaurants in the same town, for example, are in competition with one another.  The same is not true of many public organizations. There are some, like the Post Office, that must compete with private organizations like UPS.  However, there are many other public organizations, like public schools, that typically do not have to compete.

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