Markets are the products of thousands of decisions of billions of people. They are incredibly complex – which, by the way, is why economists generally use assumptions to make modeling them more manageable. Yet, somehow, markets almost always create an efficient system of distributing resources in order to most efficiently cater to society’s needs. The ‘almost’ means that we are constantly tweaking the mechanisms and incentives dictating the market’s structure, but it also means we have to be careful to avoid turning the almost into a snarl of inefficiency. At the center of this entire system is fierce competition for resources, which, in a modern society, translates to money.
Competition is life at its most natural state. It is the same from the microscopic scale as it is on the Serengeti. The difference for us is that resources are allocated based upon a set of rules rather than the law of the jungle. We, as a society, get to vote for what we value with our money. Those monetary votes are what firms compete over. The field of play is ideally the product itself, or at worst marketing, but it frequently bleeds over into ways of harming competitors. Sometimes, when there are just a couple of large companies in a given market, they collude in some ways to keep prices high or wages low. Other times, the structure of the market creates barriers to competition. Often, the very thing choking off that competition is regulation.
The particulars of different markets are endless. Given the sheer volume of variables impacting markets, generalizing is impossible. Still, categorizing helps us develop a better framework for writing the rules than a one-size-fits-all approach. Instead, building a toolkit from which you can pull out a hammer or a screwdriver or an allen wrench as needed helps us avoid making problems worse.
We don’t want anticompetitive companies like Facebook and Google having policies on not poaching each other’s employees and we don’t want noncompetes preventing wages from reaching their true equilibrium. In the same way that having only one internet provider available means you have to stomach poor service, anticompetitive approaches to hiring means employees have limited ways of selling their labor and must settle for lower wages and worse benefits. President Biden’s effort to end the practice of endless noncompete agreements is a good start at preventing the problem, but some exceptions need to be made to prevent intellectual property theft and determining what that threshold looks like will need to be clearly defined.
Platforms, such as Amazon, create an entirely different problem. Amazon was built into the behemoth that it is now by constant iteration and investment in making a better product. The company has been so good, in fact, that they have effectively forced some competitors to pay them for the privilege of selling on their platform. It is a ruthlessly efficient business, but a customer-centric one. It’s not entirely fair to say they have destroyed retail, but they have outcompeted everyone in the shift to consumption on the internet. If regulation of the company was done heavy-handedly, consumer welfare would be greatly harmed, and Walmart would likely start celebrating. A few targeted measures like one preventing Amazon from violating agreements with sellers and copying the most popular products (something they have been documented doing), would be much better.
The government itself frequently prevents competition in numerous ways, too. One is by subsidizing dying giants. A lifeline for a company that is no longer productive may save a few jobs, but over the long term it prevents better businesses from growing and chokes off competitors – slowing innovation in the process. Alternatively, the government can create a thicket of well-meaning regulation that raises costs and encourages concentration. That, too, destroys competition, because a concentrated industry is a less competitive one. Small businesses cannot compete or grow because the barrier to entry – high legal or compliance costs – is simply too high.
The Biden Administration’s effort to encourage competition is a laudable one, but they must recognize the difficulty that lies ahead. Entrenched interests will try to prevent meaningful legislation and a well-meaning but misguided attempt could backfire with both higher costs for consumers and even less effective competition. The moment is opportune. People everywhere feel cheated by monstrous corporations finding their way into every facet of our lives. The administration can recruit Republicans to the cause by cutting regulations that are less effective while Democrats push for tighter controls on the biggest corporations. With a little bit of elbow grease, this could be a signature achievement.