| |
| |
April 16, 2007
Cut-Throat Competition
Everybody knows what
competition is: it is that “cut-throat” market process where some profit-seekers
try to get ahead of other such in order to maximize their profits. Some say
competition is good and that it effectuates an evolution in product design as
well as distribution and marketing processes where better ideas beat inferior
ones. Others say competition is a hostile state of affairs where everybody is
forced to “beat others”--the market’s competitive and violent condition should
be replaced by peaceful and superior cooperation.
Theoretically, any of these
descriptions can be true. The sole goal of engaging in acts of competition,
defined as “a business relation in which two [or more] parties compete to gain
customers” according to the Princeton
Wordnet, is to get ahead of one’s competitors. What is important in a
competitive market, at least when leaving out the fact that producers aim
primarily to satisfy customers’ needs in order to make profit, is to achieve
advancement relative to existing (and future) competitors.
This relative advancement
can be done two different ways: either one advances one’s own position, or one
makes sure all others’ positions are decreased. The alternatives are thus to
work hard to move myself only into a better situation or to move
everybody else into worse. Moving only some of my competitors into a
worse situation than their current wouldn’t quite do it--there would still be
competitors at status quo. So the alternatives have to be moving myself only or
moving everybody but myself.
The costs for doing the
latter should, economically speaking, be enormously higher than the costs of
making me better (not to mention the benefits of actually getting better at what
I do). It would thus be rational to assume competitors in the market place would
choose to invest time, skill, and money into making themselves better rather
than trying to undermine competitors’ businesses. Investing more than others in
the game of competition would be a clear disadvantage, presumably an economic
loss, and so there would be no actors in the market place, at least in
the long run, trying to destroy others’ enterprises rather than build their own.
This is one sound, rational argument for a free market--it is extremely
productive and creates enormous wealth for everybody.
However, this is not
exactly true in the contemporary markets--companies do invest both labor and
capital into moving competitors into worse situations rather than making own
advancements. The critics of the market do have a point here, companies tend to
act in ways that, free market theoretically speaking, seems irrational and
counter-productive. Not only do companies outrun by others try to bring down the
more successful firms as a last attempt to survive as market players--market
leaders invest their rightfully earned profits into keeping competitors
far (or further) behind.
Now, why would actors in
the market place do such a thing if it is utterly irrational and much more
costly than investing in development? The answer is: free market thinking isn’t
applicable. It isn’t possible to use free market logic to say such acts are
rational or not in a market that isn’t free. The rationale for destroying
competitors rather than advancement of self enters the market the same moment
the State does.
We know a market that isn’t
free is less efficient and less wealth-creating and less innovative than a free
market. In a market under the weight of a regulatory, interventionist State the
conditions fundamentally change and the logic is necessarily different from the
logic of the free market. The not-so-free market logic includes parameters free
market logic does not have to consider: coercive restrictions, favors and
political pull, taxes, etc.
In the contemporary market
it may not be rational to invest in and strive for advancement in order to
create a distance to competitors simply because the cost of keeping competitors
at bay is internalized in the State. The huge costs of moving competitors into a
worse situation are kept artificially low through the State offering the
“service” of crippling competition mainly at taxpayers’ expense. The costs of
the coercive framework have already been covered--the coercive apparatus can be
used for but a small fee (be it bribe, campaign contribution, patent fee…).
This not-so-free market
logic isn’t applicable only in markets where the huge welfare-warfare state is a
player; it is applicable in any market with a power monopoly. The reason
for this is that it is not the State per se that changes the logic of the
market--it is the very nature of power. Any power, even if somehow limited, has
this kind of destructive influence on the market: even if the existing power
doesn’t currently have the power or infrastructure to forcefully stifle
competition, it may seize it and thus creates an artificial opportunity to use
power as a means of competition.
Power, as we know, can be
lobbied, bribed, bought and in many other ways used if one has the knowledge how
to do it. A strictly limited power might not be used directly, but it is quite
possible to successfully invest in the project to create a slight alleviation of
these limits in order to gain return favors. Even if power is tightly leashed,
and thus the cost of making use of it high, power itself necessarily attracts
attention from those willing to use it. A market where such a power exists will
thus never function as a free market.
Competition often tends to
be ugly in contemporary markets simply because it is “cut-throat” in a very real
sense. Companies act rationally in a profit-maximizing sense, and thus make use
of State coercion where it exists in order to “cut the throats” of competitors
with the State’s sword. So long as there is a State-like power directly or
indirectly affecting the market there will be political favors, destruction, and
fiddling in the market place rather than open, honorable business exchanges for
mutual benefit.
Subscribe to the PerBylund.com Update! Subscribers receive a short e-mail message every time one of Per Bylund’s columns is published, with a synopsis and link.
Subscribe here: www.PerBylund.com/notifier/?p=subscribe
|
|
|
|
|
|
