All Commentary
Wednesday, May 1, 1974

Competition: Key to Consumer Dominance

Mr. Siegan is the author of Land Use Without Zoning and many articles on the subject. He practiced law for 20 years in Chicago before moving in ¹973 to La Jolla, California where he is an adjunct professor of law at the University of San Diego Law School.

Rezoning to permit the construction of a major regional shopping center has been requested for a large tract of land located about fifteen minutes from where I live, and some of my neighbors are upset and the usual maneuvering and protesting are taking place. Some local officials have expressed opposition because the new shopping center, by creating additional competition, will diminish the profits of existing businesses within the city. It has even been suggested that merchants make a mass protest against the proposed center.

There is no doubt that the more business facilities in existence, the greater the competition each will confront. But this is about the worst reason in a free enterprise society to deny anyone access to the market. We live in a society which is highly dependent upon competition. We rely upon competition to protect the consumer and stimulate the introduction of new, more and better products and services. There is no governmental agency available to accomplish these vital tasks: nor can government benefit the consumer and society even remotely as well, as any traveler to the socialist countries can confirm. The consumer is king when competition abounds; he is a serf when it is controlled and restricted.

A new shopping center will have to provide something better or different to attract customers —and the older centers may have to change their methods and improve products and services to keep pace. For consumers, the result will be some or many lower prices and larger varieties and better selections. Life will be made that much easier and more comfortable for many people.

A Competitive Society

The concept of open competition is innate to this country, as evidenced by the antitrust laws which are intended to make the deliberate elimination of competition a crime. If, for instance, several builders within a city were to agree to build a small number of apartment buildings and to prevent any others from being built, laws would quickly be adopted, if they did not exist, to dissolve this agreement and possibly even penalize the parties involved. This is because such an agreement would give the initiators special economic powers.

Zoning accomplishes the same result when it limits construction or development. The owners of existing buildings would in either situation be able to charge higher rents and/or offer poorer services and/or avoid undertaking repairs and improvements.

But it might be said, perhaps there might be too much, or “cutthroat” competition and we need zoning to save us from such a fate. The answer is that there can never be too much competition from the consumer’s vantage point — and everyone is a consumer. Businessmen who voluntarily enter a market should bear the risk of competition; they can take into account this risk when they commit their funds. Moreover, why should those who are part of the market be given preferred status over those who want to enter it?

Nor is it possible for anyone to determine the “correct” amount of business competition. There are always many uncertainties in the business world and it is difficult to evaluate precisely market conditions pertinent to any proposed development. Future economic and population trends are exceedingly difficult to project accurately for any one area, and this is compounded by changes in demand caused by the shifting desires and needs of people, all of which may glut or unglut a market. This is a risk that can much better be borne by entrepreneurs than by consumers.

Those who invest their money have the greatest incentive and are consequently in the best position to estimate this risk, and that includes both the developers and their lenders, for all large projects require major long-term financing. To return to the case of the proposed shopping center — many of the owners of existing businesses must contemplate it with as much delight as they would an impending hurricane. Self-interest would dictate opposition to any additional competition.

And unfortunately, such self-interest has often been a major factor in zoning decisions; businessmen have frequently used overt or covert influence to try to kill a proposed rezoning that would create more competition. Would-be developers can also be expected to exert similar efforts and, regrettably, the outcome of the competition for the favor of the local politicians may determine whether development will occur.

Some contend that this state of affairs must be tolerated because zoning regulations will in the long run provide for better quality, both materially and environmentally. What such a stand fails to comprehend are the benefits achieved by society whenever new development occurs in a highly competitive market.

Consider this example. Because it is not zoned, the apartment market is exceedingly competitive in Houston and there is usually a significant vacancy rate. Yet new buildings continue to be erected even in the face of such difficulties. Why? Because the owner or developer of a new project believes that he can provide something different or better than what is currently available, and will be able therefore to attract people to buy or rent his housing in preference to his competitors’.

He has detected some void in the market and believes he can satisfy it and still obtain a profitable return. This may involve providing more amenities, larger rooms, more recreational facilities, more open space, better aesthetics, or perhaps lower rents. It requires skill, ingenuity, innovation and much time and effort on the part of the developer, yet the community is likely to benefit as much or more than he does. In this manner, society is rendered enormously valuable services without cost.

This process has led to the very high standards of living in this country. To restrict it is to substantially retard the progress and well-being of our society.

Copyright 1973 Bernard H. Siegan.

  • Bernard H. Siegan (1924-2006) was a longtime law professor at the University of San Diego School of Law, libertarian legal theorist and a former federal judicial nominee to the United States Court of Appeals for the Ninth Circuit.