Efficiency gains refer to the benefits accrued from the utilization of available resources effectively. In a competitive market efficiency gains impact on the determination of prices in various ways. Efficiency gains include; high productivity, better quality goods and services, increased profitability, reduced production costs. When there is increased productivity as a result of increased competition the prices of commodities within the market tend to come down.
In addition as a result of the low prices there is always a tendency for there is always a tendency for there to be increased consumption of goods and services. Increased competition also leads to improved quality of goods and services. This improved quality of goods and services is usually as a result of research and development. Increased research and development leads to reduction of production costs. This reduced cost of production is later reflected in the reduction of the prices of the goods and services. When firms experience excess profits they sometimes give back part of the profits to the community by way of reduced prices. This usually happens after increased competition results in less efficient firms to be driven out of the market. Once this happens the remaining firms can enjoy economies of scale. Once this happens the firms experience lower production costs and thus they end up lowering their prices.