Glossary of competition terms

This Glossary was prepared by DG COMP and the OECD for non-competition specialists. Each term is enriched with references of national case laws from the e-Competitions Bulletin. (© European Union - © OECD)

Efficiency

The term has a wide number of usages. In the context of industrial organization economics and competition law and policy, it relates to the most effective manner of utilizing scarce resources. Two types of efficiency are generally distinguished: technological (or technical) and economic (or allocative). A firm may be more technologically efficient than another if it produces the same level of output with one or fewer physical number of inputs. Because of different production processes, not all firms may be technologically efficient or comparable.

Economic efficiency arises when inputs are utilized in a manner such that a given scale of output is produced at the lowest possible cost. An increase in efficiency occurs when an existing or higher scale of output is produced at lower cost. Unlike technological efficiency, economic efficiency enables diverse production processes to be compared. Competition is generally viewed by economists to stimulate individual firm(s) or economic agents in the pursuit of efficiency. Efficiency increases the probability of business survival and success and the probability that scarce economic resources are being put to their highest possible uses. At the firm level, efficiency arises primarily through economies of scale and scope and, over a longer period, through technological change and innovation.

The term "efficiency" in distribution or consumption is used to describe the situation when a particular set of goods and services are divided amongst the consumers in such a way that no one individual can be made better off without making another worse off. (...)

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