Another policy that could be used to increase competition could be through investment grants and subsidies, and by tax incentives to encourage new product development. Keeping interest rates low is also a strategy that would encourage investment and and therefore greater competitiveness. In addition, keeping them as stable as possible would increase certainty and reduce risk. Finally, investment may be stimulated by reducing the interest rate elasticity of investment, which means it is easier to raise interest rates without a negative effect on investment. This could be achieved by investment grants and tax relief on investment. However, the danger with too low interest rates is that they could trigger an increase in household spending (C) causing demand pull , which would worsen, rather than improve, competitiveness.
The level of competition in product markets can also be improved by deregulation to reduce , In addition, privatisation of industry is also likely to improve competitiveness, but there are few industries left in the UK to privatise. Reducing through and competition policy are strategies that can be effective in creating a more dynamic and competitive micro-economy. Firms will become more competitive and strive for greater productive efficiency. However, it can be argued that monopoly power helps generate some , and the advantages of economies of scale might be lost if monopolies are broken up. Additionally with a firm aiming for greater productive efficiency, and with a reduction of regulation on businesses, worker exploitation may start to occur such as longer hours and lower wages, therefore reducing worker satisfaction and conditions.
A country such as China could also resort to becoming more protectionist in order to increase domestic competition. One strength of protectionism is that it keeps the domestic economy flowing. Since there is a decrease in imports, domestic firms have less competition, and so are able to continue. The domestic economy also strengthens, because the unemployment rate will be minimal. This is because the domestic firms are able to produce and sell more goods with a lot less difficulty, giving firms less incentive to decrease its cost by decreasing its work force. The people with jobs will keep consuming, allowing a flow of the economy.