What does the Principal of Competition suggest about excessive profits?

The Principle of Competition posits that when companies make excessive profits, it often attracts competitors to the market. These new entrants seek to capitalize on the lucrative opportunity, which typically results in increased supply in the market. As competition intensifies, prices tend to drop, and profit margins narrow. This process not only curtails excessive profits for the initial businesses but also fosters innovation as firms strive to maintain their market share and differentiate their offerings. Ultimately, the cycle of competition encourages continuous improvement and efficiency, leading to a more dynamic and balanced market environment.