Higher output → Increase income → Increase savings → more investment → Economic growth →Higher Productivity
b. Innovation & productivity: Competition always give birth to new ideas, new technology, and new innovations which improves productivity. New technology helps to produce product efficiently and minimizes wastage. Competition encourage firms to make product which meets or exceeds customer requirement. Thus innovative activity will increase firm’s productivity.
c. Product differentiation: Competition is essential to produce best quality product, to develop unique design, to maintain price level. To make business successful & to avoid losses from competitor, firm try to improve productivity by adopting cost-efficient strategy. For example Since IKEA sales well designed furniture in affordable prices, other US furniture manufacturers need to improve their quality and maintain competitive pricing.
d. Labor productivity: Labor plays important role in competitive market and firm’s productivity is directly depend on labor’s productivity (how much labor is going to produce in given time period) and labor cost.