Curbing Competition

Russell Shannon is a professor in the Department of Economics, College of Industrial Management and Textile Science, Clemson University.

Is competition a good thing? Adam Smith thought so. Back in 1776 Smith prescribed heavy doses of competition, believing it to be the best means to satisfy consumers’ vast and varied wants. In some quarters today, however, people approach competition with a distinct air of distaste.

For example, in a recent issue of Sports Illustrated, a spate of readers’ letters decried the inclination, sometimes found among sports participants, to win at any cost.[1] The famous remark of a well-known coach—“Winning isn’t everything; it’s the only thing”—quickly springs to mind. For some athletes, achieving points on a scoreboard may become a passion that consumes.

By the same token, some students who fail to learn their ABC’s, their multiplication tables, and their chemical valences may stoop to anything to get a good grade. If only the ingenuity devoted to cheating had been applied to learning!

But consider that lament. Notice its implication: competition clearly has a noble edge. Students and athletes can—and usually do—compete by honing their skills. Likewise, in our economy, the competitive drive leads to more production, lower prices, and novel products. The competitive thrust of American industry has endowed us with a veritable cornucopia of attractive goods and services.

If people overlook the many benefits of competition and try to stifle it, they may end up making matters worse. Examples are abundant:

Consider the effects of OPEC, the infamous foreign oil cartel. By joining together in a common effort, the member nations cut competition. As a result, they also managed to raise the price of oil to extraordinary levels—as any American motorist can tell you! Is that really admirable?

Such cartels are generally forbidden in the U.S. by our antitrust laws. Yet we have many means of circumventing their restrictions.

In some cases producers try to limit or even prohibit foreign imports. Because American auto manufacturers find it hard to compete with Japanese models, they want Japan’s producers to reduce their exports. That is, they want to curb competition. The result will be higher prices and less choice for American car buyers. Is that really beneficial?

Another common device for curbing competition is the government regulatory agency. Examples include the ICC (for railroads and trucks), the CAB (for airlines), the FCC (for radio and TV stations), and the FDA (for the drug industry). In each case, the agency may have been set up to protect consumers. But what consumers actually got was less choice and higher prices.

What’s more, under regulation competition usually takes on new forms. When airlines could not compete by reducing rates, they resorted to champagne breakfasts for their customers and fancy frocks for their stewardesses. Most passengers would probably have preferred to spend less on their transportation in order to have more to spend at their destination.

Nor are programs aimed at curbing competition offered only by government at the federal level. In New York City (and elsewhere) in order to drive a cab, you must buy a license. There, in the land of”free enterprise” and in the very shadow of the Statue of Liberty, fewer than 12,000 people can obtain taxi licenses. But that limit does not deter competition: in their desire to drive cabs, people have driven the price of licenses over $60,000![2]

Of course, government is not always involved in efforts to curb competition. What happens when labor unions negotiate wage increases with management? They implicitly deny any laborers who would be quite happy to work for less the opportunity to do so![3]

The motives behind efforts to curb competition vary. Sometimes they are high minded. Environmentalists, deploring the destruction of natural beauty by developers and others who want to cut down timber and build homes, seek to have vast areas set aside and kept in their pristine state. But to what extent is protecting trees preferable to using them to provide human housing? Is it fair for environmentalists to deny others the right to compete for their share of nature’s resources?

In other instances, the attempt to limit competition emanates from motives that are detestable. According to recent reports from the Texas Gulf Coast, the Ku Klux Klan has rallied residents to drive off Vietnamese fishermen—poor immigrants who have earnestly sought to make-an honest living. The Klan’s purported aim was to reduce competition in the local fishing industry.[4] Sad to say, this is but one of the more blatant efforts of groups which seek to deprive blacks, women, Jews, immigrants, gays, and other minorities of job opportunities—all the while claiming shamelessly to be standard bearers for “patriotism” and “morality”![5]

No matter what the motive or the mechanism, it would seem that efforts to squelch competition can be just as destructive as competition itself. Attacking the excesses of the competitive drive often provides people an excuse to arrogate for themselves the right to diminish opportunities for others.

Competition is a common ingredient of our human nature and predicament. The question is not whether we will compete, but how? This question was addressed by John Underwood in the Sports Illustrated article which inspired the letters mentioned previously.

Underwood quotes former Heisman trophy winner Pete Dawkins as saying, “to win by cheating, by an umpire error, or by an unfair stroke of fate is not really to win at all.” Then Underwood goes on to provide an example of truly selfless competition. In the 1964 Winter Olympics, the British bobsled team suddenly found itself desperately in need of a bolt. The Italian bobsled team generously offered to provide one—and then the British went on to win the gold medal.[6]

Isn’t that the sort of example that should inspire us all? In the end, shouldn’t we always try to compete by putting forth our own best effort—that is, by behaving in a way that dignifies, rather than demeans or denies, our humanity?

1.   One correspondent wrote: “I have long believed that losing can be as powerful a teaching tool as winning can.” Sports Illustrated, March 9, 1981, p. 82.

2.   Joe Mysak, “Trafficking in Taxis,” Barron’s, February 23, 1981, pp. 12,16,18. The behavior described here has generated interest in what economists call “rent-seeking.” For further discussion, see A. O. Krueger, “The Political Economy of the Rent-Seeking Society,” American Economic Review, LXIV (June 1974), 291-303; also the chapter on Rent Seeking in Richard B. McKenzie and Gordon Tullock, The New World of Economics (3rd ed.; Homewood, IL: Richard D. Irwin, 1981), pp. 242-59.

3.   “Just as a legal minimum wage excludes some people from employment opportunities, so a high wage secured by union contract (perhaps under the threat of a strike, or total withdrawal of labor services) excludes those who would be willing to work for less.” Paul Heyne, The Economic Way of Thinking (3rd ed.; Chicago: Science Research Associates, 1980), p. 238.

4.   A UPI dispatch to this effect from Santa Fe, Texas, was published under the title “Vietnamese Feel Hatred of the Klan” in the Greenville News, February 16, 1981, p. 5B.

5.   For examples of a rash of recent attacks on Jews, see “Again, Anti-Semitism,” Newsweek, February 16, 1981, pp. 38, 41.

6.   John Underwood, “A Game Plan for America,” Sports Illustrated, February 23, 1981, p. 80.

Further Reading