Friday, 4 December 2015

Six Pictures That Will Tell You Almost Everything You Need To Know About Competition

In recent times we have gone from this….



To this….

 
And from this….

 


To this….

 


And from this….

 


To this….


 
The one word that best summarises what drives this improvement is 'competition'. It is competition that brings such significant progress shifts for people in society. If you have a monopoly on a good or service there is no selection pressure to improve and innovate, as consumers have nowhere else to go as an alternative. But with competition, providers are continually looking to improve products, innovate to offer something new, and retain competitive prices too.

It is competition that drives human progress; it is through competition that resources are most efficiently allocated; and it is competition that provides signals regarding which goods and services we want and need, and with whom co-operation will be most beneficial. The more it is realised that competition is the driving force of efficiency, innovation, improved material well-being, and the principal route by which people are lifted out of poverty, the more it is realised that we continually need more market and less government in our daily transactions.

EDIT TO ADD: When I said "we continually need more market and less government in our daily transactions.", a couple of people for some reason thought that was an endorsement for what they often like to call 'unbridled' or 'unfettered' capitalism. It was no such thing. And on that point, let me correct a popular misconception: almost no pro-market person I've ever met thinks that the market should be allowed to run with no government regulatory protocols. So, then, I do not mean that the government shouldn't regulate - here I am talking about the government as an agent in the economy in its own right, i.e. one that produces goods and services. When the government produces goods and services it is usually done so through an absence of, or too little, competition - in fact, when the government runs the service it usually has a monopoly on that service, which stultifies competitive forces.

In saying we need more market and less government, I was talking about their role in the economy as agents of manufacturing, and how competitive firms are more efficient at that. Governments need to regulate, where regulation should only mean forms of light intervention to direct for the common good the way providers and consumers behave. However, to do this it is imperative that the politicians that intervene understand the full range of costs and benefits associated with their actions - and alas they frequently demonstrate to me that they do not (in some cases, of course, they will understand but ignore that understanding because the right decision will be an unpopular one in terms of votes). A nigh-on perfectly reliable rule of thumb is that when politicians try to interfere in the natural mechanism of prices they are getting it wrong. But that doesn't mean there are not necessary government interventions - some light regulation is essential.



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