Why (inefficient) businesses want to limit competition

Jun 14, 2013 by Stephen King, The Conversation

If there is a 'root and branch' review of competition laws after the next election, it should be led by a group of sexagenarians. That is, people aged at least sixty.

Why? Because they will remember how bad business was prior to our current competition laws and will know that our competition laws are all about protecting consumers, not protecting inefficient businesses.

Prior to the introduction of our first effective competition laws in 1974, Australian business was anti-competition and anti-consumer. For example, as Macquarie University's Vijaya Nagarajan notes in her forthcoming book on Australian competition law (ANUepress), in the 1950s:

"Cartels were a feature of Australian life, collusive practices were common and Australian industry was always highly concentrated".

Similarly:

"usiness did not view restrictive practices as improper; the practices were frequently termed 'orderly marketing' …".

Why did these limits on competition exist and why did the law change to stop them?

Starting with the second question, the laws changed because competition helps consumers and helps the economy to grow.

Competition protects consumers from high prices and low quality products. It protects consumers from businesses that could otherwise treat their customers with contempt because those customers would have no-where else to turn.

Competition helps create a vibrant and growing economy. Competition drives innovation. It creates incentives for businesses to offer better products at lower prices. Look for the most innovative parts of our economy and you will often find that they are also the most competitive.

Competition does not, however, help lazy or poorly managed businesses to increase their profits. Competition is the curse of every business person who wants an easy life.

Put simply, competition is the enemy of mediocre competitors. If there is strong competition then each business has to keep on its toes. It has to think about how to improve its offerings for consumers every day. It has to think about what consumers want and deliver that to consumers.

If consumers want lower price – deliver it!

If consumers want higher quality – deliver it!

If consumers want ethical product – deliver it!

Competition puts the consumers in charge. And if one business fails to serve consumers then a rival will. The rival will profit and the failed business will disappear.

For , competition is short, nasty and brutish. No wonder mediocre businesses hate competition and want to limit it. These businesses find it mutually beneficial to prevent competition among incumbents and raise barriers to keep out new competitors.

That is why we need effective competition laws – to protect consumers and the economy from mediocre businesses that prefer collusion to innovation.

Any review of competition laws needs to keep a consumer focus. However, much of the recent debate on competition policy in Australia has forgotten the consumer. Rather the focus has been on competitors – or at least those firms who are finding the going too tough. These can be multinational companies like Ford, or small businesses like your local video store. These flailing (and failing) businesses are would like profit without competition. The profit may come from money paid by the taxpayers (eg the car industry), by getting cheap inputs at someone else's expense (eg the chemicals industry wanting a 'gas reservation' scheme) or by restricting the ability of more efficient firms to compete (eg limiting market share in groceries).

Each of these interventions reduces competition and harms . However, lobby-groups are pushing these and other anti-competitive proposals. If they can turn the proposals into law then they will make a significant monetary gain, at the expense of customers.

This year is the twentieth anniversary of the Hilmer committee inquiry into National Competition Policy. That review revolutionised our competition laws and kick-started the Australian economy. Instead of being a banana republic, Australia has enjoyed two decades of growth underpinned by competition and competitive reform.

It would be tragic if, in this twentieth anniversary year, a root and branch review of competition laws was captured by vested interests that want to limit . It would push Australia once more down the banana republic path. Unfortunately, current political debate suggests that this risk is real.

Explore further: Less-numerate investors swayed by corporate report presentation effects

add to favorites email to friend print save as pdf

Related Stories

The (digital) price is not right

Sep 28, 2012

A leading expert on intellectual property and consumer rights at The Australian National University has called for a range of legislative and regulatory changes to help stop unjustified price discrimination against Australian ...

Google wins Australian advert case

Sep 22, 2011

Global Internet giant Google won a court case against Australia's competition regulator Thursday over claims that sponsored links at the top of its search results were misleading to consumers.

Apple, e-book publishers, EU find competition deal

Dec 13, 2012

(AP)—The European Union's competition watchdog has accepted proposals by four publishers and Apple to end agreements that set retail prices for e-books—a practice the EU feared violated competition rules.

When good service means bad behavior

Nov 29, 2012

Economists and professionals praise the merits of competition, as it leads to lower prices and improvements in quality. But in the automobile smog-testing industry, competition can lead to corruption and even public health ...

Recommended for you

Migrant employment on the rise

Oct 20, 2014

Skilled migrants are enjoying better jobs and higher levels of employment thanks to a shift in policy, according to a new study by the Melbourne Institute of Applied Economic and Social Research at the University ...

User comments : 37

Adjust slider to filter visible comments by rank

Display comments: newest first

antialias_physorg
2.7 / 5 (7) Jun 14, 2013
If consumers want lower price – deliver it!

If consumers want higher quality – deliver it!

If consumers want ethical product – deliver it!

Generally a good idea - with one caveat: What the consumer wants is not always what is best for the consumer (short term - and especially long term).

The consumer may want lower price - but it may be at the cost of turning a product unhealthy. And consumers are rarely in a position to judge whether something is healthy (or manufactured in an ethical way).
The only immediately available property the consumer sees to distinguish product A from product B is price. And going by that property alone will always lead to shoddy products over quality products (especially if consumer are cash strapped because there is no more middle class)

If the consumer had full information (and unlimited spending money) then pure competition would work. Otherwise it may fail in certain circumstances.
ryggesogn2
1.7 / 5 (11) Jun 14, 2013
And consumers are rarely in a position to judge whether something is healthy

Just can't trust the FDA, which was created at the behest of inefficient meat packers to limit their competitors who were providing a better quality product at a lower price.
Consumers are in a better position to judge the VALUE of the products they purchase with THEIR money than any govt agent. And when millions of consumers are making millions of purchasing decisions every day, and with today's plethora of media 'informing' them, the value will win.
Inefficient companies lobby the state for a 'level playing field':
"Bill Gates resisted the notion that a software company needed to hire a lot of lobbyists and lawyers. He didn't want anything special from the government, except the freedom to build and sell software. If the government would leave him alone, he would leave the government alone."
http://articles.l...20110405
antialias_physorg
3.3 / 5 (7) Jun 14, 2013
and with today's plethora of media 'informing' them, the value will win.

You may have noticed a thing called "advertising" (which is just an euphemism for "controlled lying")

Consumer get lots of information. But not being experts they don't know whether the information can be trusted or what it even means (or do you know what sodium laureth sulfate is? And whether it's a good or bad idea to have it in your shampoo?)

Consumers vote with their wallet and with what they are told - whether it's to their advantage or not.
(E.g. that's why we got VHS over Betamax - even though every expert will tell you Betamax was superior - and the professional recording world used it almost exclusively)

Companies aren't in it to provide best value. They are in it for profit. If reduced value with better marketing means more profit then that's the way they'll go. Always.
ryggesogn2
2.2 / 5 (10) Jun 14, 2013
"The survival of farm subsidies is emblematic of a larger problem: Government is biased toward the past. Old programs, tax breaks and regulatory practices develop strong constituencies and mindsets that frustrate change, even when earlier justifications for their existence have been overtaken by events. It's no longer possible to argue that ag subsidies will prevent the loss of small family farms, because millions have already disappeared.

It's no longer possible to argue that subsidies are needed for food production, because one major agricultural sector -- meat production -- lacks subsidies and meat is still produced.

The larger lesson must be discouraging. Among other qualities, good government requires the capacity to adapt to change. It needs to discard what doesn't work or is no longer necessary."
http://www.realcl...801.html
ryggesogn2
1.8 / 5 (10) Jun 14, 2013
Companies aren't in it to provide best value. They are in it for profit.

Of course they are.
And when a Canadian pet food company started to receive complaints their customer's pet were getting sick, they immediately investigated and found their Chinese supplier was sending them poison.
The Chinese govt didn't prevent the problem and neither did the US govt inspectors find it. Customers did and the company most affected immediately responded because they wanted to make a profit and keep their customers.
Govts don't have to be responsive to their citizens, but they are most responsive to those who lobby them and provide campaign contributions.
BTW, the Chinese govt did execute (kill) someone involved and hired an independent company, the National Sanitation Foundation, to set up a screening program and I'm sure anyone who buys such products will have them screened on receipt.
ForFreeMinds
2.1 / 5 (7) Jun 14, 2013
antiatlas_physorg: "What the consumer wants is not always what is best for the consumer (short term - and especially long term)."

I see that you support government deciding for you, what's best for you. Also, that the only "immediately available property " you use to "distinguish product A from product B is price." Actually you didn't say that, you said others do, but to be consitent, you must also do it.

I disagree. The consumer should be free to choose what they want, whether it's good for them or not (in your mind) because someone freely choosing to purchase something believes it is good for them to do so.

You are endorsing others controlling your decisions - you should reconsider because it's very likely government bureaucrats will make decisions for you that you disagree with.
ryggesogn2
2.1 / 5 (11) Jun 14, 2013
"The profit may come from money paid by the taxpayers (eg the car industry)"
LikeTesla's CAFE credits.
it's very likely government bureaucrats will make decisions for you that you disagree with.

Like a NYC mayor limiting the size of the soda you can buy or a MA town that bans water bottles.
antialias_physorg
3.3 / 5 (7) Jun 14, 2013
"I see that you support government deciding for you" - ForFreeMinds

No I do not. But I see things in more shades than black and white. There are huge drawbacks to either system (full freedom and full government control) - but there is a healthy mix.
For example, as I pointed out, the individual cannot have all the information - either through lack of time, lack of ability to grasp it or just lack of access to it. In these cases it's sensible that there should be an agency that can concentrate the knowledge and the knowhow to aid informed decision and prevent abuse (something like the FDA. Whether the FDA in its current form is doing that job well is an entirely different issue)

"The consumer should be free to choose what they want" - ForFreeMinds

Yes. But it should be an informed decision. Advertising and lack of information can lead to choosing something that is detrimental to the consumer. What the consumer thinks he wants and what he thinks he gets aren't always the same thing.
ryggesogn2
2 / 5 (12) Jun 14, 2013
(something like the FDA. Whether the FDA in its current form is doing that job well is an entirely different issue)


How to you plan to keep any govt agency free from conflicts of interest?
The taxing agency in the US is attacking those who oppose Obama.
The EPA is attacking those they don't like.
The FDA is approving over the counter abortion medication for children and has rushed approval for drugs that killed people.
I would trust a group like UL or NSF or IIHS. They are not funded by govts and have a vested interest in integrity. If they are not trusted they go out of business and the UL and IIHS are funded by insurance companies that must payout for shoddy, unsafe products.
Govts can't be sued for approving products that kill people.
Canadian Economy
1 / 5 (1) Jun 15, 2013
Globalisation and competition are diametrically opposed. When big business has killed off it's competitors, you then have a monopoly and have kissed competition goodbye.
alfie_null
5 / 5 (2) Jun 15, 2013
Predictably, the usual parties vehemently disagree with government involvement in influencing what we eat. With the expressed belief that enlightened consumer choice and perhaps food industry ethics would provide sufficient corrective feedback to ensure the industry would do things beneficial for us.

So, why are Americans so fat? Why are Americans assaulted by so much advertising enticing them to chow down at some restaurant chain's super-sized food trough? Or guzzle carb laden "energy drinks"? Junky "lunchables" for their kids? etc.

For all the resources an individual can bring to bear on discerning the best choices, corporations can bring far more in misleading him to their advantage.

To reiterate, corporations are only in it for the money. Corporations that aren't don't survive. Expecting that will coincide with providing the best value to consumers is naïve.
alfie_null
5 / 5 (2) Jun 15, 2013
One additional point: presuming you, as an individual, wish to avoid purchasing drinks that are soft drinks. You don't particularly care what others drink. They can get fat and diabetic and die painfully at an early age. It's their choice though, not up to you or the government.

You should care though, even from that selfish perspective. If most of the people around you choose to eat junk, then that's also the only choice you get. Without going to inordinate lengths. Incrementally, life becomes far more difficult for you in lots of little ways, as industry doesn't want to serve your outside-the-herd interests.
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
industry doesn't want to serve your outside-the-herd interests.

Walked through a regular grocery store or a Whole Foods? How bout ethnic grocers (canned crickets from Thailand)?
If you can't find what you want, then you will just have to make it yourself.
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
Globalisation and competition are diametrically opposed. When big business has killed off it's competitors, you then have a monopoly and have kissed competition goodbye.

The only way a monopoly can exist is with the support of a government restricting competition protecting the monopoly.
Don't blame 'big business', blame big, socialist govts.
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
"Might it be there are no libertarian "countries" because people like E. J. Dionne (who apologize for central power) and people like Lindsey Graham (who crave central power) and people like Jeffrey Immelt (who benefit financially from central power) belong to a parasitic nexus that feeds on the fears and hard work of average citizens? This nexus forms through processes generally referred to as "public choice economics." James Buchanan (a libertarian) won a Nobel Prize for explaining how and why this process happens, and libertarians understand these dynamics better than anyone. Understanding why power corrupts doesn't make us long to have power. It makes us long for a way to dissipate it."

Read more: http://www.fee.or...WHX3pRd7
ryggesogn2
1.8 / 5 (10) Jun 15, 2013
From Buchanan on public choice:
"bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics."
" First, the individual becomes the fundamental unit of analysis. Public choice rejects the construction of organic decision-making units, such as "the people," "the community," or "society." Groups do not make choices; only individuals do. "
"Second, public and private choice processes differ, not because the motivations of actors are different, but because of stark differences in the incentives and constraints that channel the pursuit of self-interest in the two settings."
"Legislative catering to the interests of the minority at the expense of the majority is reinforced by the logic of collective action. Small, homogeneous groups with strong communities of interest tend to be more effective suppliers of political pressure and political support (votes, campaign contributions, and the like) than larger groups whose interests are more diffuse.
http://www.econli...ice.html
JohnGee
2.8 / 5 (9) Jun 15, 2013
Just can't trust the FDA, which was created at the behest of inefficient meat packers to limit their competitors who were providing a better quality product at a lower price.


You really do live in an alternate universe. I guess keeping your employees (i.e. human meat) out of the product would lower efficiency and drive up costs.
TheGhostofOtto1923
1.8 / 5 (5) Jun 15, 2013
"cartels...collusive practices were common..."

it is SMARTER to collude than to compete honestly. Networking and cooperation are the hallmark of human ingenuity. REDUCING competition is a more advanced way of doing business than honest competition.

Observe the animals. How does a smaller animal elude a predator? By deceiving it. Feint one way, flee the other. Blend in to the background. Look bigger than you are.

All of war is deception - sun tsu

Humans colluded with others to form tribes. Tribes colluded with each other to defeat common enemies. Collusion is human nature.

Free marketers seem to think that humans are willing to give up their most useful skill. The only way they will do this is by constant force and oversight. It is called domestication and it is distinctly unnatural.
JohnGee
2.5 / 5 (8) Jun 15, 2013
it is SMARTER to collude than to compete honestly.
Adam Smith said something to the effect of only a fool would believe businesses don't collude.
TheGhostofOtto1923
2.3 / 5 (6) Jun 15, 2013
Globalisation and competition are diametrically opposed. When big business has killed off it's competitors, you then have a monopoly and have kissed competition goodbye.

The only way a monopoly can exist is with the support of a government restricting competition protecting the monopoly.
Don't blame 'big business', blame big, socialist govts.
But they are the same thing aren't they? Corporations are run by a central 'party' that dictates rules and procedures. Employees have no more say in the operations of the company than comrades in china.

Corporations are certainly not democracies are they? They are founded on the principle that a select few are far more capable of running the business than the collective voice of the workers.

This also demonstrates incidentally why communism itself is ALSO a sham. The people are in every case the enemies of Leaders.
JohnGee
1.8 / 5 (5) Jun 15, 2013
Not to mention corporations are subsidized inventions of the state.
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
Corporations, unless protected by the govt, can't use force to take your money.
JohnGee
2.1 / 5 (7) Jun 15, 2013
Corporations, unless protected by the govt, can't exist.

I fixed that for you.
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
Just can't trust the FDA, which was created at the behest of inefficient meat packers to limit their competitors who were providing a better quality product at a lower price.


You really do live in an alternate universe. I guess keeping your employees (i.e. human meat) out of the product would lower efficiency and drive up costs.


The alternate universe was created by the 'progressives' over 100 years ago and their lies have been spun into 'truth'.
"The mainstream record of history regarding meatpacking holds that the meatpacking industry was unregulated before the passage of the Federal Meat Inspection Act, "
"The meatpacking industry was not unregulated. "
"The big packers were actually enthusiastically in favor of the regulation"
"(Upton) Sinclair ultimately opposed the meatpacking legislation, having seen it for what it was - a boon for the big packers which hampered competition and the market. "
http://wiki.mises..._packing
ryggesogn2
1.5 / 5 (8) Jun 15, 2013
"This, then, was the basic context of big business; these were the problems that it faced. How did it react? Almost unanimously, it turned to the power of the state to get what it could not get by voluntary means. Big business acted not only through concrete political pressure, but by engaging in large-scale, long-run ideological propaganda or “education†aimed at getting different sections of the American society united behind statism, in principle and practice."
http://mises.ca/p...statism/
But without a cooperative state, statism could not have occurred.
JohnGee
1.7 / 5 (6) Jun 15, 2013
"At the time Sinclair's book came out, [the meat packing industry] had been inspected for more than a decade." Via your source.

So I guess the founders should have packed it up after the Articles of Confederation bombed? I'm not surprised it took more than a decade to sort out the meat packing industry.
ryggesogn2
1.4 / 5 (9) Jun 15, 2013
I'm not surprised it took more than a decade to sort out the meat packing industry.

Socialist Sinclair's book was fiction and the meat packing industry was sorted out just fine.
Even the socialist Sinclair was opposed to using state power to crush competition.
Socialists then and socialists today attack industry instead of the state because the socialists don't want to minimize the power of the state, they just want to control that power.
nowhere
not rated yet Jun 16, 2013
Globalisation and competition are diametrically opposed. When big business has killed off it's competitors, you then have a monopoly and have kissed competition goodbye.

The only way a monopoly can exist is with the support of a government restricting competition protecting the monopoly.
Don't blame 'big business', blame big, socialist govts.


Being a monopoly is the big business ideal, without regulations, what stops them from fighting and colluding until there there is no more competition?
ryggesogn2
1.6 / 5 (7) Jun 16, 2013
what stops them from fighting and colluding until there there is no more competition?

Dying is not in anyone's self-interest.
ryggesogn2
1.6 / 5 (7) Jun 16, 2013
Why socialists don't want competition:

"Competition is often a dirty word in France: never more than when it threatens to disrupt "avantages acquis" (acquired advantages), the gold-plated benefits a group of (usually) public employees has managed to have enshrined in contractual agreements. For years, among the various bonuses that can double an SNCF railwayman's salary, was a "prime de charbon" (coal allowance), finally cancelled long after the last steam engine was retired. Pension age starts at 50 (soon 52) for train drivers and 55 for most other personnel. "
"French public sector strikes so often and so fiercely. The paradox is that apart from the quarter of the French workforce employed by the bloated French state, almost no one else in France belongs to a union – only 7 per cent of the 22.3 million-strong workforce do. "
http://www.telegr...ite.html
Unions is the US want MORE govt employee unions.
TheGhostofOtto1923
2.3 / 5 (3) Jun 17, 2013
Well the reason why capitalists don't want competition is pretty obvious isn't it ryggy? History tells us that they will bribe, cheat, steal, threaten and kill to eliminate it, especially when the cycle peaks and they start to lose.

And those who are best at capitalism can be expected to be the most effective at doing these things. Capitalism CAUSES unionization. It is inevitable. Unionization is only a quiet form of revolution.

News - the Feds are digging up a field in Detroit in yet another attempt to locate Jimmy Hoffa. Know why the mob was Created ryggy? To do things like keep the communists out of labor unions through extra-legal means.

McCarthy was certainly right. Hollywood and the govt WERE full of commies. The People In Charge appreciate the need for Balance.
Czcibor
1 / 5 (2) Jun 17, 2013
Companies aren't in it to provide best value. They are in it for profit. If reduced value with better marketing means more profit then that's the way they'll go. Always.


So what about politicians or civil servants? Are they to provide the best value? Or maybe in choice between delivering unappreciated high quality or rather poor quality with but lots of marketing aimed at convincing voters how irreplaceable they are, wouldn't prefer they that what would give the highest job security?

I'm become really suspicion when there is a silent assumption that a person making his simple and mundane choices in supermarket would make awful choices, while the same person voting (where the choice is much more complicated, and errors are often well hidden) would become brilliant.
ryggesogn2
1.7 / 5 (6) Jun 17, 2013
So what about politicians or civil servants?

The first objective of a politician is to get elected and stay in power.
The first objective of a bureaucrat is to expand his power base by controlling a larger budget and staff.
People can vote many times a day for a company and only get to vote 2,4 or 6 years for a politician and no chance to vote for the Regulatory State bureaucrats.
nowhere
not rated yet Jun 18, 2013
what stops them from fighting and colluding until there there is no more competition?

Dying is not in anyone's self-interest.

What If one's competition dies, would that be in one's self-interest?
ryggesogn2
1.7 / 5 (6) Jun 18, 2013
what stops them from fighting and colluding until there there is no more competition?

Dying is not in anyone's self-interest.

What If one's competition dies, would that be in one's self-interest?

In the long run, no. The lack of competition among GM, FORD, Chrysler in the 70s for small, fuel efficient cars didn't really help them in the long run. Protected markets hurt customers and the companies.
If the demand exists, why wouldn't another competitor replace the dead one?
nowhere
5 / 5 (1) Jun 19, 2013
what stops them from fighting and colluding until there there is no more competition?

Dying is not in anyone's self-interest.

What If one's competition dies, would that be in one's self-interest?

In the long run, no. The lack of competition among GM, FORD, Chrysler in the 70s for small, fuel efficient cars didn't really help them in the long run. Protected markets hurt customers and the companies.
If the demand exists, why wouldn't another competitor replace the dead one?

Demand is met until a sole company/consortium exists, at which point they extort the market. New competition is bought out, or destoyed by anti-competitive tactics (eg deals with suppliers that prevent them from selling to anyone else, sudden drop in prices kept low only until the new competition goes under). Without regulations, how do propose a new competitor enter the market, as they are at a disadvantage in all aspects?
ryggesogn2
1.8 / 5 (5) Jun 19, 2013
Without regulations, how do propose a new competitor enter the market, as they are at a disadvantage in all aspects?


There is no market I know of that is not regulated. Customers and competitors regulate all markets.

New competition is not at disadvantage in a free market, unless they are stupid.
Historically, the first company to produce a new, unique product is likely going to lose market share as competition innovates making a new product better, faster and cheaper.