COMPETITION. — Essentially, it is the convergence on the same market and at the same time of individual plans (drawn up by individuals or enterprises) for selling or purchasing, with reference to the same goods or services; for competition to be effective, in the case of selling, it is required that none of the economic operators be able to decisively influence the formation of the existing (equilibrium) market price through their own supply; and likewise for demand.
Normally, it is more likely that for many goods competition will be lacking on the supply side rather than on the demand side, giving rise to oligopoly, which is a weakened form of competition and, in extreme situations, to monopoly. On the demand side, competition arises from the simple fact of the relative scarcity of a given good in relation to an excess demand; whereas, on the supply side, it is rooted in the necessity for enterprises to expand the sale of their products in order to reap the cost reductions associated with large-scale production, unless the intention is to achieve, through the elimination of other enterprises, the profitable position of the monopolist.
The tactic of the so-called competitive struggle consists mainly in raising or lowering the price, respectively of purchase or sale, thereby securing a corresponding advantage for the seller or the buyers.
In the case of competition among sellers, there is a compression of the selling price and of production costs themselves, with the exclusion from the market of enterprises that produce under particularly onerous conditions; so that it is usually affirmed that free competition benefits consumers, to whom it delivers products at the lowest prices, and also the entire economy, inasmuch as it stimulates producers to achieve the lowest costs, i.e., the most economical conditions of production. However, the benefits of free competition may be lost if it is not fully realized; while they give way to genuine disadvantages, especially of a social nature, in certain situations.
Free competition among sellers may be lacking when these sellers succeed, especially through advertising, in differentiating their product even merely psychologically, thereby securing a kind of labile but sufficient monopoly to exploit consumers to some extent; but, more importantly, it may be systematically restricted when enterprises enter into agreements to fix a minimum price below which they will not sell (collective monopoly agreement, or cartel). This agreement can mark a deviation of the free market toward monopolistic forms, the more effective the more comprehensive the cartel is, i.e., the smaller the number of enterprises capable of pursuing a different sales policy, with visible repercussions on the market.
There is, however, a limit to the action of the cartel, inherent in this very organization, and it is the interest of the enterprises burdened with the highest fixed costs in expanding production and sales through a price reduction, since their production costs rise, with the expansion of production, according to a slower progression, thus affording the possibility of greater overall profits. All competition ends up suffering significant limitations, such as those implemented by cartels, whenever changes in the intensity and direction of demand prevent enterprises, efficient or not, from adequately recovering the cost of fixed capital, which continuously increases with the growing mechanization and specialization of production. Indeed, if the market, on the buyers’ side, is too volatile in relation to the slowness with which modern enterprises adapt to a quantitatively and qualitatively varied demand, it is easy to understand how enterprises are tempted to maintain prices artificially high, when left free they would fall to the point of preventing the recovery, within a suitably rapid interval, of the cost of productive equipment that cannot be adapted to other uses without high conversion costs. This essential fact, at once technical and economic, which on the other hand can be viewed as the problem of unsold inventories—inasmuch as it results from a systematic ignorance, on the part of each enterprise, of the production and trade plans of other similar enterprises—is perhaps not sufficiently appreciated by those who regard free competition as in every case supremely beneficial. It must in truth be acknowledged that competition is advantageous to the consumer, in the form of an offer of goods of progressively better quality and at a tendentially lower price; but that it is not easy to avoid its being, precisely when it is pushed to extremes, transformed into a quasi-monopoly (through business coalitions), thereby shifting onto consumers the cost of maintaining in operation less efficient enterprises; and even more that the absolute freedom of initiative among competing enterprises is not infrequently costly in terms of the stability of the economic system, i.e., the security of the income received by consumers themselves, who are also producers (collaborators in production) for a market to whose fortunes they are bound.
There is a theory, that of Röpke, according to which the State should adopt an economic policy aimed at restoring fluidity to the productive organization and to the market whenever free competition threatens to lose significantly in efficiency and the danger of monopolistic situations arises, harmful to consumers and uneconomical because the economy of production does not undergo the control of a free market in its evaluations. In practice, however, the obstacles to implementing a policy of assistance to enterprises so that they may continuously and rapidly readjust their programs and their plants in correspondence with changing demand—thus avoiding the temptation of cartel solutions and remaining able to face competition without interruption—are so great that States usually limit themselves to coming to the aid, especially if extra-economic motives intervene, of some enterprises that are more than others in difficulty in adapting to the new market situation, reserving the bulk of intervention funds for the correction of the economic cycle; and economic fluctuations are also found in an environment where competition among enterprises is integral, even though it cannot be denied that certain depression situations may be accentuated when the spread of cartel formations has reduced the functioning of competition in fundamental sectors such as that of raw materials.
In the particular case of competition among retail sellers, a tendency for prices to rise rather than fall is frequently observed when the excessive multiplication of enterprises (the plurality of enterprises being one of the characteristics of free competition) leads to such a fragmentation of the existing clientele that each enterprise can cover its fixed costs with a limited volume of sales and is therefore forced to charge prices higher than it could if there were fewer competing enterprises.
But the radical objection to the acceptability of a totalitarian system of free competition lies in the impossibility—both ethical and economic—of rigidly subordinating human labor, and in general the demographic element of the complex socio-economic organism, to the exigencies of such a system. The ethical impossibility is underscored both in *Rerum novarum* and in *Quadragesimo anno*, where Pius XI speaks of “that unrestrained freedom of competition which allows only the strongest to survive, that is, often, the most violent in the struggle and the least concerned with conscience” (*Encyclical Quadragesimo anno*, 15 May 1931, in *AAS*, 23 [1931], p. 211).
“It is necessary,” the Pontiff adds, “that free competition, confined within reasonable and just limits, and even more so economic power, be in fact subject to public authority in matters pertaining to the office of this authority” (*ibid.*, p. 212).
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Regarding examinations, the object and manner of the examination, the judgment of the examiners, and the precept of the bishop are specified. The nullity of the examination occurs only when those requirements essential for its validity are not observed. Within ten days, those concerned may lodge an appeal—but without suspensive effect—against the bishop’s decision to the metropolitan, the nearest bishop, or the Holy See. In the latter case, a distinction must be made between an appeal concerning the judgment of the examiners and one concerning the extrinsic form of the examination: in the first instance, if the Congregation of the Council finds the judgment erroneous, it annuls the acts of the examination and orders a new one; in the second, if justice has been served by the examiners and the bishop, and if there are just grounds, the Congregation remedies the irregularities. The form may be general or special. The special form is convoked for individual parishes upon their vacancy (this form is in force in certain regions of Italy, Portugal, and South America). The general form, by contrast, is convoked once or twice a year to test candidates in doctrine; in the event of a parish vacancy, the examiners must then assess the other qualifications of those who have passed the examinations favorably, in order to determine their suitability for the specific parish (this form is in force in certain dioceses of Germany and Austria).