Freeman

ARTICLE

Dog-Eat-Dog Competition

OCTOBER 01, 1974 by M. NORTHRUP BUECHNER

Mr. Buechner is an assistant professor in the College of Business Administration, St. John’s University, Jamaica, N. Y. "This paper," he says, "has benefited from the advice and criticism of Kathleen Edwards."

The charge of "dog-eat-dog" or "cutthroat" competition is not among the heaviest weapons in the anti-capitalist arsenal, but neither is its significance trivial. It was an important factor behind the Interstate Commerce Act of 1887, the first major intervention by the Federal government into private business in this country. In the depression of the 1930′s, during Roosevelt’s first term, it was the major impetus behind the attempted cartelization of American business through the National Recovery Administration. It is the primary reasoning behind some statutes of the antitrust laws, especially the Robinson-Patman Act. And it is a not infrequent complaint of businessmen who have gone to Washington to seek subsidies or other forms of government support.

Further, the concept of dog-eat-dog competition is used to support what is one of the heaviest weapons in the anti-capitalist arsenal, the charge that a free economy generates monopolies and monopoly power. Specifically, it is alleged that if left unrestricted, competition will result in firms destroying one another until every industry, and perhaps the entire economy, is dominated by one or a few firms.

But the most important influence of the dog-eat-dog view of competition is in its moral perspective. It projects and implies a view of competition as malicious, degraded and corrupt, and by extension, since competition is the motive power of a capitalist economy, the same view of capitalism. It is this view of competition as vicious, antisocial, destructive behavior that is a significant factor in the willingness of politicians, the courts, and the people generally to forcibly modify competitive action through government law. And the same implicit view of the immoral nature of competition has served to undermine the willingness and ability of those who would defend capitalism. The subject of dog-eat-dog competition therefore is worthy of serious attention.

A Valid Concept of Competition: First Step

The businessman is most likely to complain of dog-eat-dog competition when the process of competition seems to be reducing his profits and perhaps threatening the survival of his business. He feels himself attacked by his rivals in the market because their activity is in fact having the effect of damaging his economic welfare. It seems to him that the competing businesses are in the position of dogs fighting over the same scrap of meat and like dogs, in order for one of them to be free to eat or enjoy the trade in peace, he will have to kill off the others. This is the spectre that the concept of dog-eat-dog competition calls up: two or more parties each of which must destroy the others in order to survive. It is in fact a totally invalid view of competition.

However, to prove that the dog-eat-dog view of competition is invalid, it is first necessary to establish a valid concept of competition as a standard for evaluation. As a first step in that direction, everyone’s concept or idea of competition will have the following as an essential, if implicit, element: the activity of two or more parties trying to acquire a value which only one can have.¹ For the meaning of value here and in the remainder of this paper, I follow Ayn Rand’s definition, "that which one acts to gain and/or keep."2

There are a number of aspects to this approach to competition that need to be explicitly identified and emphasized. First, competition is a kind of activity or action (as distinguished from the usual economic approach that describes "pure competition" as a kind of condition or state of reality). Second, there cannot be competition where there is only one party or participant. A solitary individual or firm would have nobody to compete with. Third, and most important, competition is an activity that arises only when the value pursued can only be had by one, when the acquisition of that value by one of the competitors necessarily excludes everyone else from its possession.3

Viewed in this way, "competition" is a very broad concept covering a tremendously wide and disparate range of activities. However, this is entirely consistent with the way the term is used in reality, for "competition" is not restricted in its application to economics and business. It has been the habitual neglect of this very fact and the treatment of competition as if its meaning were limited to the business world that has been a major source of error on this subject. The economists’ purely competitive view of competition could never have been accepted if any attempt had been made to integrate it with the other forms of competition. Therefore it is worthwhile reviewing some of the alternative uses of "competition" in connection with the definition advocated here.

Some Applications of "Competition"

Perhaps the most widely used alternative application is to games. In any game, the value pursued is "winning," the meaning of winning being defined by the rules of the game. What makes the activity of a game competitive is that normally there can only be one winner. (Games are in a class by themselves as far as competition is concerned because of the artificial context, established by the rules, in which the competition takes place. We shall return to this shortly.)

The concept "competition" is also used in connection with the activity of a political campaign. One aspect of a political campaign which makes it a type of competition is that not both parties to the campaign can be elected. If both McGovern and Nixon could have become President at the same time, the election campaign would not have been competition, and obviously the nature of the entire proceeding would have been radically altered. And we can also talk about the competition of two men for the love of the same woman. Again, it is competition in part because in our society, she can only marry one of them. In a different society, where a woman could have two or more husbands, it would not necessarily be competition.

In the competition of the business world, the common value pursued by two or more firms is the customer’s dollar. Two businesses are in competition with one another when their relationship is such that the same customer in pursuit of some specific economic value could potentially spend his money with both of them. What makes their relationship competitive is that what is potential for both can only be actualized for one, i.e., the potential customer can actually spend a given dollar only once. It is this pursuit of the customer’s dollar that gives rise to all the business activity that is commonly regarded as competitive: cutting prices, improving quality, offering better services, giving guarantees, running sales, advertising, providing attractive surroundings, etc. It is this type of activity that characterizes an entire capitalist economy from top to bottom and it is specific concrete actions of this kind that are subsumed under the concept of competition as it is applied to the business world.

A Valid Concept of Competition: Second Step

There is something very important that all these concrete actions have in common. They all involve the creation and offering of values. A lower price is a value to a customer and so is a better product. Pleasant surroundings, good service, guarantees, are all values which the business offers as the means of competing. (Advertising is the way that businesses make the public aware that the values they offer are available.) If competition is the activity of two or more parties trying to acquire a value which only one can have, the specific activity involved is making values available, offering values, creating values, putting values on display. It is this value-centered activity that is the content of "competition," the type of actions that are actually subsumed under the concept. That the value pursued can only be had by one sets the general context; that the method of pursuit is the offer of other values gives the specific meaning.

That the content of competition is making values available is true of every form of real world competition, not just business competition. The competition of a political campaign is putting values on display in the form of personal appearances by the candidate and offering values in the form of campaign promises and position papers. People vote for the candidate they think has the most values to offer. Two lovers trying to win the same girl do so by displaying the values of character and personality they have that they hope she will fall in love with. All competition is essentially a pro-value activity, in some way directed at announcing, creating, displaying or offering values.

Competition in Games

The only exception to this is the competition that occurs in games. It is an exception by virtue of the fact that the rules of the game normally carry the activity involved entirely outside the context of normal human interaction. In a game, the specific form that competitive action takes is entirely defined by the rules of the game and can be anything the rules prescribe. The rules of the game are in turn limited by the fact that the purpose of the game is to amuse and entertain the participants or spectators or both. But apart from that specific purpose, and as far as normal human relations are concerned, the rules of the game are arbitrary. Outside the context of the game, there is no rational basis for the furious dispute we see concerning the movement of a leather ball over the hundred yards of a football field. In the real world, to smash yourself head first into the body of a stranger is assault and battery. On a football field, it may be blocking or tackling and is part of the competitive activity defined by the rules. Similar examples could be drawn from almost any game.

The reason that a game’s competition need not take the form of offering values is that the playing of the game itself presupposes the voluntary agreement that is the raison d’etre for the offer of values. In the absence of force, any kind of human interaction requires the consent of all parties, and values are offered in order to secure that consent. This is the root in reality of the fact that real world competition takes the form of offering values. But since the players of a game have already established the context of voluntary consent by agreeing to play, the interaction that takes place within the game need not require any further agreement and hence no further offering of values. By contrast, in the real world, there is no set of rules spelled out in advance and consequently most continuing human relationships depend on a continuing offer and acceptance of values.

Competition versus the Use of Physical Force

Competition in the real world does not include as a kind of activity the destruction or theft of values. Consequently, it does not include the use of physical force or violence or any derivatives thereof. The use of physical force is always essentially anti-value, being inevitably directed at either the destruction or confiscation of someone’s life, liberty or property. This is true whether the force is used criminally, in initiation, or properly, in retaliation. Whether he is an innocent victim or a hunted criminal, the recipient of force always experiences it as an attack on his values. It is the essentially antivalue nature of force that explains the reason for its existence, i.e., if it were not directed against somebody’s values, the force would not be necessary.

There is another sense in which the retaliatory use of force by the victim against the criminal is pro-value, for the victim uses force to preserve and maintain values that are rightfully his. However, the anti-value basis of the efficacy of force can still be seen in the fact that the intended victim maintains his values only by threatening or destroying the life, liberty or property of the criminal, as does the government when it acts as the victim’s surrogate. There is nothing competitive about the use of physical force.4

Thus, all the activities associated with "Watergate" are not considered a normal part of the competitive process of the past political campaign. Nor would it be considered competition if one political candidate had his opponent assassinated. And if one of a woman’s suitors should throw acid in the face of a competitor to disfigure him, that would not be a competitive process of wooing her love. Contrary to a leading economic principles text, war is not a form of competition.5 It fulfills the condition of the general context for competitive activity in that the value sought, victory, can only be reached by one of the parties. But war is essentially anti-value, destructive of values, the key to success being the extent of the destruction that can be inflicted or threatened against the enemy. As such, in terms of the fundamental meaning and significance of the activity involved, war is the opposite of competition.

Nor would it be considered part of the competitive process in the business world for a businessman to dynamite his competitor’s plant or to murder the manager of a competing firm. Competition in business always takes place by means of the creation and offering of economic values in trade or exchange. It does not include any activity that involves the initiation of physical force, since such activity contradicts the basic nature and motive power of competition. Consequently, the suing of a superior firm by an inferior under the antitrust laws, very popular today,6 is not competition either. Economic competition should be defined as the activity of two or more firms pursuing the same customers’ dollars by offering the highest values in exchange.

Three Implications of Dog-Eat-Dog Competition

Now, having established a valid concept of competition, we are in a position to critically evaluate the view of competition as "dog-eat-dog." That label is intended to draw a parallel between the activity of dogs fighting over a piece of meat and businesses competing for customers and to suggest that there is no essential difference between the two cases. It is true that if one dog gets the meat, that necessarily means the other dog or dogs cannot have it. To that extent, and to that extent only, there is a parallel between the general contexts in which competition and a dog fight may take place. However, that general context is not the primary or essential issue. As we have seen, war and competition have that much in common. More important are the things suggested by the dog‑eat-dog view of competition which in fact are not true of any real world competitive relationship. There are in fact three such implications of the dog-eat-dog view.

First: Obsessive Concern with Other Firms

The first thing suggested by the dog-eat-dog view is that the primary focus of attention of competing firms is on each other, that each firm directs all its actions at the other firms in the industry. Of the three implications of "dog-eat-dog," this is the only one that is true even of dogs. If two dogs are fighting over a piece of meat, each dog must be primarily concerned with the other dog and direct all its actions at the other dog in order to win the fight. This is not the case in business. Competing businesses are not engaged in a fight, there normally is no winner at all, and the primary focus of attention and direction of action is not at the other firms. This is not to say that firms in competition with one another do not have to be concerned with what each other is doing, as they certainly do. But the primary method, the action of competition, is in the creation and offering of economic values, more concretely, in the production and sale of goods and services. And consequently, the primary activity and focus of concern of a business firm must be on the production and sale of its own goods.

Concern with what other firms are doing is a side issue. It comes up and is relevant only in so far as it may affect the firm’s ability to sell its own goods. It is meaningless in fact for one firm to be concerned with another apart from that specific issue. Since competing firms are not engaged in a fight, in any direct physical contact, the only impact they can have on one another is through each other’s sales. It is because of that impact that firms do have to be aware of changes in the quality of the competition’s product, their prices, services, advertising campaigns, etc., not as an end in itself, but as relevant information for the firm’s determination of its own quality, price, advertising, etc. But rationally, the firm’s primary focus of concern must be on its own productive activity, not on what the competition is doing. The way the firm competes is through the offering of values. A firm or an entrepreneur obsessed with what the competition is doing, as suggested by "dog-eat-dog," would have no values to offer.

Second: Formalized Theft

The second thing suggested by the dog-eat-dog view is the idea that competition is the process of one party struggling to take something away from someone else, a kind of formalized theft. This is not true even of two dogs fighting over a piece of meat. Since the meat does not belong to either of the dogs, the winner cannot be said to have taken it away from the loser. However, it has significantly greater plausibility with dogs than with human beings, since the concepts of individual rights and property do not apply to dogs. With human beings and business competition, the customer’s dollar pursued is the property of the customer until he spends it. No businessman can have any prior claim on the customer’s money, and consequently he has had nothing taken away from him if that customer or all customers choose to spend their money with his competitors.

Even if a business has a customer of long standing that it has come to count and rely on, that does not change the fact that in a free society all men are free agents and can belong to no other man. If that long-standing customer changes his mind and starts to patronize a competitor, nothing has been taken away from the business that loses the customer in any fundamental sense. The complaints in such a case arise from a refusal to acknowledge or recognize that the customer did else from the prize as it does for the two dogs. While in each specific case, a dollar spent with one firm cannot also be spent with another, one sale or one customer is not the condition of success or failure. The normal condition is that most of the firms in the market can continue to survive and prosper and make profits over the long run with a reasonably efficient performance. The success of one does not depend on the destruction of anyone else, but rather on the quality of the firm’s own productive efforts.

The primary goal of the firm is not the destruction of other firms but the acquisition of the customer’s dollar, the maximization of profits. The primary means to that goal is production of the best product possible at the lowest possible price. If other firms are driven out of business in the process of pursuing that goal, it is normally entirely incidental. The goal was not the destruction of other firms, but the maximization of profits. New firms are constantly opening for business and failing, not because competing firms set out to destroy them, but simply because they could not match the competition’s quality and/or price at a cost which would allow them to make profits.

Cases do occur where one firm cuts its price expecting to drive not belong to the business, the business did not own the customer, the customer was not the property of the business in the first place. Competition is not a process of businesses trying to take values away from one another but rather a process of creating values and offering them for exchange on the market.

Third: Destruction or Elimination of Competing Firms

The third and by far the most important implication of the dog-eat-dog view is that the goal of competing firms is the destruction of one another, that success in the market place means the elimination of the competition. Again, such a view is not true even of dogs. When two dogs fight over a scrap of meat, the success of one does not depend on the death of the other; it depends only on winning the fight. However, even this view of success in the dog world is not applicable to economic competition.

The concept of a "winner" in the dog-eat-dog sense has no relevance for competing firms. The obvious reason is that virtually all real world markets will support more than one firm. There may be some plausibility in calling the firm with the largest share of the market the temporary winner, but "winner" in this context does not mean the exclusion of everyone some competitors from the market, pick up their customers, and increase its own business and profits. I am not speaking here of predatory price cutting, which is another anti-capitalist myth, but of the case where one firm is genuinely more efficient than others and can continue to make profits at prices that drive other businesses into bankruptcy. Again, the focus of the price cutting firm’s concern is not on driving other firms out of business, but on increasing the size of its own market. The elimination of the other firms is incidental. The businesses being driven from the market under such circumstances may complain that it is "dog-eat-dog" or "cutthroat competition," but that is not its basic motive or purpose.

Dog-Eat-Dog Competition in the Real World

Is it possible for the conditions implied by "dog-eat-dog" to exist in the real world? Is it possible for there to be more firms in a market than the market can support so that the survival of some does depend on the elimination of others? Yes, it is possible. It can come about in essentially two alternative ways. First, a highly profitable new and/or growing industry may attract so many firms that everyone ends up making losses. The classic example is the railroads in the 19th century. However, such a situation represents a serious error in business judgment about the potential long run profits in the industry, and we should expect it to be rare in the free market. In the case of the railroads, they were overbuilt in the pursuit of government subsidies and land grants, not as the result of private errors in the pursuit of private profits.

The second alternative is that an industry which is not overbuilt to begin with may suffer a change in market conditions, most likely a decrease in demand, which results in all or most of the firms taking losses. The decrease in demand can occur for two reasons: (1) a shift in demand away from this product to something else, or (2) a general decrease in demand as a symptom of a recession or depression. In either case, the consequence may be too many firms in the industry for existing market conditions.

These are the conditions under which the cry of "dog-eat-dog competition" is most likely to be heard. The implication of the cry is that the process of competition itself is destroying the firms in the industry; and if we interpret competition as only the offer of values, then there is a sense in which competition is to blame. The problem is simply that too large a quantity of goods (values) is being offered on the market, as we shall see.

But competition, aggressive competition, is not just the process of churning out goods. It is the pursuit of the customer’s dollar by offering the highest values in exchange. In that context, firms may lose money as the result of competition if another firm or firms consistently offer higher values and attract most of the customers. But under the dog-eat-dog conditions described above, all or most of the firms are losing money and none of them is doing well. Their losses, therefore, cannot be the result of unusually aggressive competition because the firm initiating such competition, offering the higher values and attracting the customers, should be making good profits. No, the firms are losing money not because competition is abnormally intense, but because of the Law of Demand.

Dog-Eat-Dog versus the Law of Demand

The Law of Demand says that larger quantities can only be sold at lower prices and smaller quantities can be sold for higher prices. If all the firms in a market are losing money, the fundamental reason must be that under existing demand conditions, the total quantity the firms want to sell can only be sold at a price below costs. Obviously, this is a situation that cannot continue. No firm can go on indefinitely producing at a loss. Eventually the least efficient firms will leave the industry and when they do this will reduce the total quantity to be sold on the market. The smaller quantity in turn can be sold for a higher price, and this process will continue until the firms remaining in the market can make profits. The crucial point for our purposes is that it is not competition that causes losses or drives firms from the market under such conditions, but the relation between the demand for the product and the cost conditions facing the firms.

This last point is the basis for the answer to the charge that dog-eat-dog competition results in monopolization. When existing firms are being driven out of a market under the circumstances described above, it is because of the conditions that exist in that market. Firms will stop leaving when those conditions change, and it is the process of firms leaving that is the means to changing those conditions, i.e., reducing the quantity sold and raising price. The cause of the problem is not in the competition, and there is nothing about the nature of competition that inevitably leads to monopolization. The only way that monopoly can result from competition is if one firm can out compete everyone else in the market, offering higher values than any other firm can match. Such a monopoly is very rare in the open market and represents a significant achievement. It is also clearly to the interest of the market’s customers.

Summary and Conclusion Concerning Economic Competition

The fundamental means by which economic competition proceeds in the real world is the offer of economic values, placing goods and services for sale on the market. The concept of dog-eat-dog competition implies that competition is characterized by a paranoid obsession with what other firms are doing and proceeds through formalized theft and the destruction of other firms. As such, dog-eat-dog competition has no connection with competition as it actually exists in the business world or with any other form of competition.

Moreover, from the broadest perspective, the dog-eat-dog view implies that competition is a process of destroying values; other firms, other firms’ customers, other firms’ goods. Blowing up a competitor’s plant and murdering the manager would be entirely consistent with what is suggested by dog-eat-dog. As such, this view of competitive action is not merely mistaken, it is the reverse of competition as it is actually carried on in reality.

The heart of competition is making values available, and any concept that suggests the opposite is viciously antisocial and destructive. This is not an abstract characterization but a factual indictment. It can be seen in the consequences of the policies listed in the first paragraph of this article, policies that have flowed from the dog-eat-dog concept. The Interstate Commerce Commission was created in part to prevent dog-eat-dog competition among the railroads and in the process has virtually destroyed them. The National Recovery Administration, set up to prevent dog-eat-dog competition among American businesses generally during the Great Depression, would have turned the United States of America into a fascist state. And the Robinson-Patman Act, designed to prevent some firms from harming or destroying others through low prices, has in practice operated as an attack on all price competition. Such are the consequences of a false concept.

It is bitterly ironic that the destructiveness which the dog-eat-dog concept attributes to real world competition has in fact been the consequence of the policies generated by the dog-eat-dog concept. It becomes mind-staggering when one grasps that this is only a minor instance of a process which operates on a global scale. It is a process whereby a charge against capitalism generates government action which creates the evil alleged in the charge (e.g., the charge that capitalism is economically unstable has led to government policies which have destabilized the economy). This perverse sequence of events can be found to have resulted from virtually all the attacks that have been directed against the capitalist system.

 

1 When I say "everyone," I exclude only modern economists whose concept of "pure competition" is the opposite of this; i.e., under "pure competition" there is no pursuit of values which only one can have.

2 Ayn Rand, The Virtue of Selfishness, (New York: The New American Library, 1964), p. 5. It is not possible to do more than mention here the overwhelming significance that this concept of value has for the science of economics. 3 I believe I am indebted to George Reisman for this point in my approach to competition.

4 This discussion of the use of physical force is much indebted to the writings of Ayn Rand. See especially For The New Intellectual (New York: Random House, 1961), pp. 164-66, and Capitalism: The Unknown Ideal (New York: The New American Library, Inc., 1966), pp. 39-41 and 299-300.

5 Armen A. Alchian and William R. Allen, University Economics, third edition (Belmont, California: Wadsworth Publishing Company, Inc., 1972), pp. 11-12.

6 See Business Week, "Is John Sherman’s Antitrust Obsolete?", March 23, 1974, p. 54. 

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