The word competition comes from the Latin competere, which combines com- (“with, together”) and petere (“to seek, strive, rush at”). It entered English via French around the late 16th/early 17th century, initially meaning “to strive alongside another” for something, but evolved over time from the Latin’s sense of “meeting or agreeing” to the modern sense of “rivalry” or “contest”. Recent events have made me think more consciously about competition as a concept. In the context of capitalism, competition – the striving of business rivals for advantages which result in profitability is considered benign because we imagine that the extra profitability is fleeting. Ultimately, those “supernormal” profits get competed away, and in the process, consumers benefit from lower prices, and higher quality, which is the outcome of all that “striving” for cost advantages. Everyone is better off.
Of course, sensible businesspeople know that competing away the “supernormal profits” is a bad idea. Who doesn’t like supernormal profits? Well, apart from consumers, of course. Which might explain why Pepsi and Walmart appear to have gotten together to give Walmart preferential prices (h/t Matt Stoller). One might wonder why the Trump FTC was uninterested in pursuing the case. As Adam Smith said:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
I was struck by the decision to drop the case because I was very curious what the Trump administration was thinking. Lina Khan’s FTC had filed the case using the Robinson-Patman Act, which regulates price discrimination rather than monopoly. The act might be seen as protecting smaller players against bigger players, and as such, it limits the power of big business against small. Did the Trump administration just want to reverse everything Biden had done in antitrust? Was it about favoring big business over small (that’s not Trump’s public brand), or was it just about helping donors? Of course, none of these motives are mutually exclusive.
A related observation could be made about a favorite private equity strategy: the “roll up”. The idea is generally presented as one involving buying lots of small local businesses (dentists, landscapers, refrigeration warehouses, plumbing companies) and by putting them together, benefit from “economies of scale in financing costs, supply chains and marketing. In practice, the cynical (moi?!) might think the objective was achieving a local monopoly and raising prices. The macro of the situation is quite interesting. Competition itself is restricted, which increases margins and redistributes GDP from households to corporations. Is there a natural limit to this process? Is there a point where the economy becomes chronically demand-deficient because high-income folk have a much lower propensity to consume than low-income folk? And can you fix that with policies which incentivize investment?
But the most important corollary of competition or its absence is that it creates winners and losers. I mention this because the Victorian concept of perfectly competitive capitalism assumed that “economic rents” have been competed away. We are all better off.
I point this out because one might think the news flow in the last few weeks has been dominated by stories related to geopolitical or geostrategic competition. Adam Smith (again) discussed the establishment of trade agreements and used the example of the trade in tobacco with the American colonies. We know from Daniel Defoe’s “Moll Flanders” that the tobacco trade was enormously profitable, if you could actually land a cargo of tobacco in Bristol or London (ships occasionally sank). That profitability meant that England required all the tobacco to be landed in the UK, allowing British merchants to sell the surplus to Europeans for sizable profits. The alternative would have been to allow the colonies to sell directly to Europe themselves, and remit the resulting profits back home, and that would never do!
In the last few weeks, China has watched trade agreements with one trading partner (Venezuela) torn up as the US achieved what appears to be a relatively bloodless regime change. Some had suggested that Trump removed Maduro because of his dancing, which I agree was deserving of some kind of sanction. (As funny as that would be, I am desperately hoping that Powell and Maduro end up with the same defense lawyer.) Another important trading partner seemed to be teetering on the brink of government collapse as its internal political opponents took to the streets, and external opponents threatened military intervention (very curious what happened to head that off?) that the PRC opposed. The geopolitical gloves appear to be off, like a chess game which has moved from positional play to rapid exchange of pieces. Who can say which piece is next? Perhaps we should not be surprised that the metals, precious or otherwise, are doing very well.
