Competition Theory is a concept in economics that examines how businesses compete with one another in a market. It focuses on the strategies firms use to gain an advantage, such as pricing, product differentiation, and marketing. The theory helps explain how competition affects market dynamics, consumer choices, and overall economic efficiency. The theory is often associated with the work of economists like Adam Smith and Joseph Schumpeter, who emphasized the role of competition in fostering innovation and improving products. By understanding Competition Theory, policymakers can create regulations that promote fair competition and prevent monopolies, ensuring a healthy market environment.