The Story of Money: The Concept of Competition

In the last episode we looked at monopoly, let’s now turn to its antidote, competition.To the extent that competition is at the opposite end of monopoly, and given monopoly literally refers to ‘one-seller’, the phenomenon we are talking about here should translate to ‘many-sellers’. (I wonder why, unlike for ‘monopoly’ and ‘oligopoly’ “few-sellers”, we don’t use a Greek-derived term for this related phenomenon - I guess ‘polypoly’ would sound like a parrot trying to do economics?)But yes, it’s quite simply just that: there are several sellers offering you the same or similar thing. This we have seen requires a functional (or free) market allowing for additional sellers - competitors, to naturally emerge without the existing players hindering them, which as we’ve seen doesn’t always work along ideal lines.Competition as it operates in such a functional market gives the buyers more choice. Which means the pricing is likely to be more competitive, in line with the dynamic I outlined in Episode 003 while discussing price.Competition is also in dichotomy with cooperation, but within the realm of sellers trying to offer similar goods, ‘cooperation’ can morph into its shadier cousin collusion, and as Adam Smith derisively observed, the only thing competitors trying to cooperate would lead to is cartelization - in other words collusion to charge the same (high) prices and thus negate the benefits of competition for the buyer.Furthermore, just like supply and demand which we discussed in Episode 017, competition is a dynamic that goes beyond the simple market-square buyer-seller demand: it’s a lot more pervasive.Best Foot ForwardLet’s explore the benefits of competition. Competition fosters innovation. If you are vying to offer the same goods as others, you are motivated to find better ways of doing it - a better technique to make the goods so you can offer better quality, or a lower price, or better yet, both. We have seen this at play all the time. (For an in-depth historical example of how this would pan out, I can offer, among others, TecC 43 from my other series here dedicated to innovation and progress.)Of course competition also means the seller having to be on the toes all the time. But in the economy as a whole, this is a net positive for society - we are all sellers in only one small set of things, but buyers of many more - our consumer footprint is much larger. Besides, most large-scale production being the domain of corporate entities with deep pockets, it’s competition that allows individual consumers like you and me some say in the whole process.But even producers, including the large-scale ones, have hidden benefits of competition. It both means there’s a valid demand for a certain good or service in the market, but also gives them insights as to how such demand operates and how the buyers behave. Picture the widespread phenomenon of several hairdressers or Japanese restaurants clustered on the same street - this is of course deliberate, and demonstrates that in some sense, given they cannot eradicate competition, producers in some sense seek to embrace it?Tying it All UpGoing back to the topic of price, we saw back there how price is essentially a signal, each item’s price distilling, in its own way, the sum aggregate of the entire economy. And consumer behavior in response to such prices allow for the dynamics of supply and demand to play out forming a constant feedback loop regulating the proper allocation and use of the limited resources that make up the entire economy.Similarly, back in Episode 002 where I asked an even more fundamental question - what is the market itself, answering by saying that it’s fundamentally an information system, I trust we can see how all these concepts tie together: without competition, we’d have a monopoly, which means the price wouldn’t reflect the true state of reality, which means there is no incentive for producers to optimize resource allocation, which leads not just to waste but also environmental damage, damage that given the suppression of such signals would be much harder to quantify.And as I said, competition goes way beyond the market square, like supply and demand it affects a good part of our daily decision-making. We are all forced to compete in a great many areas of our daily endeavors. And like those market-square sellers, we might prefer to have less or none of this, but as I hope we’ve seen it’s what makes things move.But then yes, for our day-to-day lives in particular, that comparison between competition and cooperation resurfaces - given the benefits of both, (and while we generally see cooperation as a positive, it has its downsides too as I hope to get to another time) when is competition the right tool for a challenge at hand and when instead is cooperation?Can we have both, and if so in what relative proportions? How do we know then how to find that balance?Article written by Ash StuartImages, video, voice narration and some footnotes generated by AINothing in this presentation constitutes as advice - financial, investment or otherFurther Reading & Reference* The Story of Innovation and Progress This is a public episode. 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