Question

How does competition, whether domestic or foreign, harm businesses?

Short answer

Reduced profits.

Step-by-step solution

Step1. Introduction

Competition primarily refers to increased number of sellers in the market. As the number of sellers selling the same homogenous good or slightly differentiated goods increase, it increases the competition.

Step2. Explanation

Competition, whether domestic or foreign would increase the number of sellers in the market. On top of it, the goods are homogenous/little differentiated. Hence, in order to increase sales, each firm will engage in price cut practices until the point it reaches the average cost of production.

This implies the firms can earn very little or no profits. They might enjoy some profits in the short run, but in the long run, under an ideal competitive market, they can only recover the cost of production.

Hence, any competition, whether domestic or foreign, harms businesses.