Effects Of Lack Of Competition On Cuba’s Economy

2414 words - 10 pages

In order for a country to flourish, its society must be equipped with the ability to compete. It must be able to compete domestically and then eventually expand to compete internationally. Forgotten as a global influence and as a national institute is the country of Cuba. The main reason why is the absence of competition. Thus, Cuba’s economy is currently stagnant and unproductive because of a lack of threat of new entrants, substitute as well as a lack of bargaining power of consumers; while having an increase in the bargaining power of suppliers and limited rivalry within the economy.

Due to a lack of threat of new entrants, Cuba’s economy is currently stagnant and unproductive. The threat of new entrants largely depends on what barriers to entry exist. Therefore, Cuba’s barrier to entry is the main reason why there is a lack of threat of new entrants. Barriers to entry make it difficult for other firms to enter into the market. It also restricts competition and aids monopoly. Barriers to competition are often the result of government regulations, and private sector firms frequently find the regulatory burden a major disincentive to doing business and because of this there is a lack of threat of new entrants. Moreover, it facilitates low productivity, low quality of goods or services and higher levels of corruption. “In a well-functioning market where you have effective competition, over time, costs are driven down, product and service quality should rise, the value of output increases, innovation occurs, firms that are inefficient are driven out of the market, and value-adjusted prices fall”(Stonehouse & Snowdon, 2007). Crucially, competition facilitates greater equality of opportunity by breaking down the barriers to fair competition. For markets to remain competitive there should be no unnecessary barriers to entry, as seen in Cuba. “Cuba’s average tariff rate is 10 percent. The country’s planned economy deters foreign trade and investment” (The Heritage Foundation, 2014). Cuba’s tariff rate is seen to double that of the United States of America which is 5%. This highlights another barrier to entry in Cuba. In addition, new firms should be able to enter when they see business opportunities. This is beneficial because; it creates employment and can lead to technological development through technology transfers, it provides capital from rich countries, improve productivity, growth and competitiveness in export and import-competing industries and increase living standards and economic growth. This can be seen, for example in countries such as India. The elimination of the monthly cuota fija payments in Cuba would have a variety of positive results as well. It would remove a barrier to the entry of new enterprises, thereby increasing number of firms, intensifying competition, increasing output, and reducing prices in the sector.

Moreover, the lack of threat of substitute is another factor contributing to Cuba’s stagnant...

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