Healthy Versus Unhealthy Competition in Business
While capitalism is based on competition between businesses, business competition can be classified as healthy and unhealthy. What constitutes healthy business competition? What are the unhealthy types of business competition?
Healthy Competition Between Businesses
What describes a free enterprise system with healthy business competition?
- Consumers have choices in the marketplace. More choice in the marketplace typically results in higher product quality and lower prices.
- Successful businesses can expand and shift product mixes based on customer demands. Businesses can move their operating facilities, expand existing facilities or alter their technological base.
- Businesses not in tune with customer demands, the law or best business practices are fail. They are replaced by new businesses that form to fill in the gap or the expansion of more customer-attuned businesses.
- Unprofitable operations can close and businesses can shed workers to fit their labor requirements.
- Businesses offering obsolete products go out of business.
- Businesses with poor service go away.
- Where demand is high, prices rise. More suppliers enter the marketplace, keeping prices reasonable.
Unhealthy Competition in Business
What are the signs of unhealthy competition in a free market enterprise? The primary sign is that either the businesses or the customers are not free.
- Consumer choices are limited in the marketplace, whether through monopolies or cartels. Why in the National Health Service in the UK so horrible? Because there is almost no private medical market and thus no reason for the NHS to treat patients in a timely manner as compared to increasing bureaucracy oversight or rationing care in a misguided attempt to save money. In another example, health insurance in the United States is regulated by state and insurers cannot offer health insurance across state lines. The result is that consumers cannot use lower cost health plans available to neighbors right across state lines.
- Successful businesses are limited in their ability to expand or adjust offerings. This may be due to local governments prohibiting their moves to larger stores or adding on to an existing factory due to false environmental or noise concerns.
- Businesses are deemed too big to fail. Then end result of this verdict is the socialization of losses, where ultimately the taxpayer pays to keep open a politically connected business. The irony is that successful businesses pay higher taxes to keep open competitors who would otherwise shut down in the marketplace.
- Local governments can prevent a business from closing its facilities. France’s mandates to pay several years of wages to workers when a plant closes results in unproductive factories staying open at a fraction of their competitor’s productivity rather than shutting down. Labor regulations limiting layoffs or employee terminations hurt quality. The most egregious example of this is union interventions in the public school systems where bad teachers and even pedophiles receive years of pay while their termination is appealed by the union. In many more cases, unions require employees who are not currently used to be kept on the payroll for months instead of freeing them to find better, long term careers.
- Local rules and regulations or national laws restrict new entrants to the marketplace. For example, New York City limits the number of taxis, causing each taxi medallion to be worth other a hundred thousand dollars. It also keeps cab fares unnecessarily high. Licensing for many professions that don't really require it are another burden, as found by an Institute for Justice Study where licensing for florists in Louisiana, barbers, interior decorators and many other jobs raised wages 10% because it restricted the skilled labor supply.