Competition
The invisible hand is guided by the pressures of a competitive market. How do we know that firms will cater to the needs of consumers – providing the highest-quality, most-desired products at the lowest cost – and not engage in irresponsible corporate extortion? Because consumers have a choice. There are other producers who find it in their best interest to provide products that people will buy. Markets that are controlled by a single firm (or a few firms) are not constrained by the invisible hand and the socially-optimal outcome is not guaranteed. Smith recognized and emphasized the need for competition to ensure that capitalism is a remarkable force for society’s well-being.
