Competition in the Market: All Sides Are Usually Winners

Two Kinds of Competition

The word ‘competition’ is used to describe two different things, and while they are not unconnected they are so dissimilar that confusion between them leads to very serious misunderstanding. What makes matters worse is that the form of competition which is most prominent in the consciousness of the average person is not the form which is most important in the real world.

The word competition comes from two Latin words meaning ‘seeking together’, and refers to the situation when a number of people are trying to gain possession of the same thing, or of similar things. What it does not specify is whether there is only one thing so that of all those who are trying to gain it only one can succeed, or whether there are many so that many or even all of those seeking may gain them, but probably not to the same extent. These are the two kinds of competition.

First Type: Winners and Losers

When people talk about ‘holding a competition’ they are normally thinking of an arrangement where there will be one (or a few prizes), for which people will compete. There will be a winner, or a few winners, and the rest will be losers. Competitive sport, which plays a large role in the lives of most people as spectators and followers if not as participants, is always organised on this basis. Games are always about winning or losing, and in addition to the fact that each individual game has a winner and a loser (such games as races, many losers), there are often further elaborate arrangements to produce an ‘overall winner’ or champion – leagues in football and similar games, championships in boxing and golf.

It is worth noting in passing that the arrangements of the leagues and championships is highly artificial. There are in no sense genuine attempts to find out who is best (which is probably a meaningless concept anyway). Their purpose is to produce a winner or a champion and they have to produce one, even if, eventually they have to spin a coin to do so. The point is well illustrated by the refusal of some football leagues to accept drawn matches. Instead, a drawn match is ‘decided’ by a series of increasingly arbitrary procedures, like set shooting at goal.

From the fact that all games have winners it is a small step to believing that the purpose of playing games is to win them. This is dubious. The purpose of most competitions was originally to encourage people to participate in an activity which would benefit them in some way. The Ancient Greeks regarded athletics as a vital part of military training. Its purpose was to strengthen all the participants, not just the winners, and the competitions and the prizes were simply a means to induce people to take part and to do their best.

The idea that games were played for their own sake and not to win was strongly held in some quarters until quite recently, but the thing which has destroyed it is the overwhelming predominance of spectator sports played by professionals. The spectators want their team to win. For them (and they are the huge majority) winning is everything and the professional players have no option but to go along with this attitude. They are paid extra if they win. In games like golf and tennis the prizes for champions are enormous. They are professionals and they are actually playing for money, but the rewards are structured so that they are playing to win.

From this came two ideas which are almost universally held today: ‘Competition is about winning’ and ‘Where there is competition there are winners and losers’. In fact this is only true of the one kind of competition, hardly at all of the other.

Most of the ‘games’ kind of competition is artificial. Special rules are carefully crafted to throw up an unambiguous winner. In real life, outside of sport, there are few such situations. For one thing there are not unambiguous winners. The various pop-singers (or for that matter, concert pianists, or architects, or surgeons) in the world are in competition with each other, but who is the winner? If one asked a group of thoroughly knowledgeable people who is the greatest singer alive today, it is most unlikely that they would agree. There would be dozens of candidates, each with their supporters. And even if they did agree, another group would not agree with them. Real life situations do not throw up champions. Neither, of course, in any real sense, do games. A particular team wins the soccer league this year because the league is structured so that somebody has to win but somebody else will probably win next year.

Second Type: Everyone is Usually a Winner

The competition which is part of a capitalist economy and the competition which was identified by Darwin and his followers as forming part of the basis of evolution has very little in common with the games-type competition.

There are, indeed, some examples of competition which resemble the ‘games-type’ outside the sphere of games. One is the competitive examination when only a limited number of candidates will succeed irrespective of how well they all do. This is like a game with a limited number of prizes and, like a game, it is a situation which has been structured artificially. Another is competition for promotion in a hierarchical organisation. There are always fewer promotion posts than people who can be promoted, so that we have the case of many people competing for few ‘prizes’.

Particular situations can arise which look very much like a game or race. Several identified people are in line for a particular promotion; only one will get it; but even in these cases we are seldom looking at a simple case of winners and losers because those who lose in the one instance have other alternatives. It is not at all uncommon to hear someone say that the best thing that ever happened to him was to miss some promotion because it led him to change his direction in a way which turned out to be more to his advantage. It is only when people are locked into a hierarchy and cannot change their jobs, like in the Mediaeval church or a Communist Party, that such competition is truly internecine.

Such situations are in any case relatively rare. The type of ‘capitalist’ competition which takes place not only throughout human society but throughout animate nature, is something quite different. Let us take as our example a particularly obvious and well-known example of capitalist competition: a retailer operating in a reasonably free market. We can consider later whether his case is indeed typical. The first thing that we notice is that the shopkeeper does not spend his days confronting his competitors or indeed dealing with them in any way. He spends his days dealing with his customers, with his employees if he has any, and with his suppliers, that is to say, with people with whom he co-operates. What he actually does in order to compete is to try and improve the quality of his co-operation – essentially to serve his customers better.

His competitors are not a defined group, like an opposing football team. He may have a competitor next door, but he may not. He may be the only shop of his kind in his particular shopping centre but he is still in competition with others, all over the town and even beyond, possibly with others kinds of suppliers, like mail-order houses. Also, to a vague but real extent, he is in competition with people who sell quite different things. This is not a major factor in the life of a grocer, though it is not quite absent, but a seller of jewelry is likely to be very conscious that he is competing with the seller of sports cars and with the seller of overseas package-tours.

The Vastness and Decentralisation of Market Competition

The fact that ‘the competition’ is a vast and vague mix of different kinds of people, in different places and doing different things, many of whom the retailer does not know personally, and of some of whose existence he may be unaware, is a most important reason why competition seldom issues in overt hostility or conflict (though it can do, as we know from the taxi wars). In the vast majority of cases there can be no question of trying to destroy the competition and indeed of engaging in any kind of active conflict with them because they are too numerous and too largely unknown. In fact, our retailer seldom meets his competitors, and if he does it will not be for the purpose of competing but for the purpose of co-operating as in a chamber of commerce.

Normally, attempts to destroy competitors make no sense because more will simply arise in their place. Grocer’s shops do not buy out the competitor across the street because if they do somebody else will come in. The idea of destroying the competition can only arise in one of two situations. The one is where the number of competitors is artificially limited so that if a certain number are eliminated no more can come in. This was the situation created by the old Liquor Act in South Africa. In a certain area only a limited number of licences were allowed. If you could acquire all of them you eliminated all obvious competition . You had not in fact eliminated all competition. Liquor is in competition with non-alcoholic drinks and with other ways of spending money and people can go to distant places to buy liquor, but you have eliminated enough competition to give yourself a major benefit.

Role of the Law

The other situation where the elimination of competition makes sense is one of lawlessness, where a group of people hope to be able, by violence, both to drive out all existing competition and to prevent any new competition from arising. This policy was followed on a large scale by the European maritime powers in the sixteenth and seventeenth centuries when first the Spanish and Portuguese and later also the Dutch and the British tried to establish monopolies of trade in particular areas and to keep out all competition by violence. The policy did not succeed and led to constant warfare, which in its turn led to the establishment of the rules which govern international trade today.

Among human beings for competition to be a peaceful process requires law but when law is present competition does not (as its critics allege) give rise to a society dominated by internecine conflict. People do not compete by trying to destroy each other; they compete by trying to serve their customers better.

The biological competition to which Darwin and his followers drew attention turns out to be very closely, analogous, not, oddly enough, to human conflict but to human competition under law. How this comes about is very interesting. The Victorians tended to see natural selection in terms of a sort of World Heavyweight Boxing Championship in which all animals fought each other to the death, until only the ‘fittest’ was left, but we now know that this is scarcely ever so. Animals very seldom fights members of their own species to the death. Territorial and mating conflict tends to take place either simply by posturing (as among birds) or by ritualised fighting in which little damage is done (as among horned animals).

Nature is ‘red in tooth and claw’ not in terms of competition but in terms of predation. Animals prey on other animals at a huge advantage so that the risk taken by the predator is negligible. Cats catch mice. (What can a mouse do to a cat?) Several lions together set on a buck, and usually a sick one at that. The difference between human beings and all other animals is that the humans can sometimes, by innovation in weapons, tactics or organisation, put themselves in a position to defeat others at a cost acceptable to themselves. Other animals cannot do this; they have to meet their own kind on a basis of equality, and a fight to the death on a basis of equality is a mug’s game, as was so well illustrated in the battle of the Somme.

So biological competition resembles human competition under law, with the principle that the better part of valour is discretion, universally followed by animals other than human beings fulfilling the role of the rule of law. There is constant conflict between predator and prey, but competitors seldom come into conflict, and indeed, just as in the human situation, often do not see each other or even know of each other’s existence. Snakes and cats both prey on mice and cats are more efficient predators than snakes. If cats arrive in an area where there has previously been only snakes, the snakes will find that there are fewer mice and their own numbers may decline, but they will probably never set eyes on the cats.

The Impact of Innovation and Change

Most of the time, in both the human and the animal situation, competition is essentially in equilibrium. Competition sets a minimum standard of efficiency which everybody has to meet, and everybody does meet it. It is in times of rapid change, and especially of adversity that competition becomes fierce and potentially internecine. It is important to remember that these situations are exceptional.

Spectacular innovation is a common occurrence in human affairs but very rare in nature because of the slowness of evolution. It can happen, though. When dogs were introduced into Australia (presumably by the first human inhabitants), their superior efficiency as predators led to the extinction of most of the indigenous Australian predators (but not, interestingly, of any of the prey species, which the dogs actually ate). In the same way the invention of the spinning jenny led to the extinction of the spinning wheel. There is a vital difference, however. It was the spinning wheel, not those who used it, that perished. A wolverine could not convert itself into a dog but a woman who earned her living by spinning on a wheel could, and many of them did become workers in a mechanised cotton mill. In wild nature innovation can indeed be catastrophic to some species but among human beings not. In human affairs it is processes, machinery or institutions that become extinct. People learn and adapt.

The other situation where competition becomes fierce and sometimes ugly, is where the external environment changes for the worse and a situation which was formerly in equilibrium is suddenly no longer. The market has contracted, the habitat has become smaller, the weather has changed for the worse, and there is less food than before.

There is a very important point to be noted here. Eugene Marais (the famous Afrikaans poet), in The Soul of the Ape, criticises the conventional view of the evolutionist of his time that the ‘struggle for survival’ is essentially a competitive struggle. The great enemy, as he points out, is inanimate nature, which will kill any living thing which is not able to cope with its challenges. The ‘unfit’ may be so – totally irrespective of any competition. If the climate becomes suddenly much colder some species and some individuals will not be able to survive. Those who were already suited to a colder climate and those that had the capacity to adapt, will survive – the others not. This is not a question of competition. Those who perished would have done so even if those who survived had not existed.

In the same way, by no means all failures in business can be attributed to competition. Many happen because the people concerned simply did not have all of what was required, lacking either material resources or skill or relying on innovations which failed or seeking to seize an opportunity which did not exist. Where successful innovation is highly desired and highly rewarded, unsuccessful attempts at innovation are bound to happen.

Government Intervention in Competition

Having noted all these things, we cannot deny that situations do arise where competition can become very ugly indeed, in situations of catastrophe, like an earthquake, a rare and therefore unforeseeable flood or drought, or a total war. In such situations it is normal for governments to attempt to suspend the process of competition, by such extraordinary means as rationing and price control as well as more indirect measures such as allowing manufacturers to form cartels in order to reduce the severity of competition among themselves.

Few would deny that in situations of true emergency some such measures may be justified but there can be little doubt that in the real world such measures have done far more harm than good because they have tended to be continued after the emergency has passed, and to be applied in situations which were not true catastrophes.

The essence of a catastrophe is that it could not reasonably have been foreseen, and that it will pass. If either of these conditions is not present, suspension of competition is entirely destructive. Where a misfortune was foreseeable, like a ‘normal’ drought or flood, it is most inexpedient that those who foresaw it and took precautions should be punished and those who did not should be rewarded, which is what happens if the impact of the misfortune is to be shared equally. If this is done, it will simply ensure that people do not exercise foresight. This was very much the effect of ‘drought relief measures’ in South African agriculture which led farmers to plant more and more maize in sub-marginal areas where there was little likelihood of getting enough rainfall. Similarly, to compensate people who build on land which is known to be subject to regular flooding is simply to encourage others to do likewise.

When the change is not a passing catastrophe but signals the beginning of a new state of affairs which is likely to continue for the foreseeable future, interference with competition is particularly undesirable. We have noted that the great advantage that human beings have over other animals in facing change is their superior ability to adapt, and the competitive process is a powerful incentive to adapt. Where adaptation is needed the last thing that should be done is to punish those who do adapt and reward those who do not. History, right up to the present, is littered with cases where the effect of government intervention has been to postpone a necessary and inevitable change and in consequence, to make the final adjustment both more drastic and more damaging than it needed to be, like attempting to dam a river and eventually causing a flood when the dam bursts.

Incentive Effect of Competition

The general point is that competition is the most powerful incentive to people to do things right, to be efficient, to render good service, and also to exercise foresight and to make necessary adaptations to changing circumstances. We can live with the suspension of competition for a short time though even then a price has to be paid, but in the long term the price exacted by any interference with competition is itself disastrous.

The incentive effect of competition is, of course, the one point that the two kinds of competition have in common. Competition certainly makes rugby players play harder and runners run faster. That, as we have noted, was what it was originally for. Today it is very far from clear what it is for. If winning is the only thing, what is the point of winning? Why play rugby or run marathons in order to win when you can just as well spin coins? In spite of everything that is said to the contrary, it is difficult to escape the idea that games really are played for their own sake and not to win, although people certainly do care about winning.

Conclusion

To conclude, let us sum up the differences between ‘games-type’ competition and ‘real world’ competition.

1. In games type competition the competitors are face to face, sometimes in actual conflict (as in boxing or rugby), always in direct contact. In real world competition one is only marginally aware of the competition. One is face to face with those with whom one co-operates.

2. Games are about competition and the purpose is to win. Business, or life in general, is not about competition and the purpose is not to win. Competition is part of the overall environment in which we pursue our actual goals – simply to live, to earn a living, to do a good job, perhaps to be famous as an outstanding practitioner of one’s art, but even that is not truly a competitive motive. Beethoven and Mozart were alive at the same time but were they in competition? Would either one be any less famous if the other had not lived?

3. In games those who do not win are losers. In competition there do not have to be losers. Some may fail irrespective of competition, some may fail as a result of competition but the great majority simply ‘hold their own’, meeting the standard that competition sets, being neither outstanding successes nor failures.

Finally we should notice that the idea dear to the sentimental Victorian socialists, like Galsworthy, that the poor are the ‘losers’ in capitalist competition, is hardly ever true. Typically in a developing society, the poor are newcomers who have come from a situation where they were even worse off (in Victorian England and contemporary South Africa, from the countryside to the towns, in modern America, from Mexico or Asia) in order to better themselves, making use of the opportunity which the prosperity of others creates for them. In the contemporary first world the poor are typically people who have been excluded by institutions the very purpose of which is to prevent them from competing (like minimum wages). So far from being the victims of competition, they are the victims of its absence.

Disclaimer: This essay was extracted from O’Dowd’s 1999 occasional paper, “Liberal Reflections”, for the Free Market Foundation. The essay’s name was changed from the original “The Two Kinds of Competition” and the headings were inserted by Rational Standard editors.