Competition

This article is specifically concerned with market competition, rather than competition as the concept.

The actual meaning of ‘competition’ should be clear, so let’s instead focus on other things. In the ideal capitalist economy, companies actively compete with each-other to keep prices down, quality high and to maintain innovation.

I’d like to coin two terms here. First is horizontal competition and the second is vertical competition. I borrowed these terms from horizontal and vertical integration.

Horizontal competition is where a company competes with other companies within its own market. Vertical competition is where a company competes with companies that are not within their own market.

For example, a record company generally competes with other record companies, but can sometimes compete with film studios. That’s the distinction I’m making.

I came to a conclusion recently (within the past year or two) that competition as it is generally described doesn’t actually exist in most markets. Horizontal competition in particular doesn’t actually exist.

If you observe markets, then you’ll notice that most of them tend to stabilize around a core groups of companies, or around just one. If you want to, you can call them natural monopolies and natural oligopolies. In this state of affairs, each company occupies a corner of the market…and is essentially dominant within that market. Nobody else can compete with them and they’re largely left alone. This results in innovation to slow down and prices to stabilize. At this point, the only disruptive (and true) competition tends to come from outsiders who have no previous stake in the market (Apple with iTunes; Spotify), which then leads to a short period of competition before stabilization occurs again. You’ll notice this pattern play out with all kinds of things, particularly streaming (Netflix the outsider; now an oligopoly).

I consider this to be a problem, though I’m not sure how big of an issue it is in practice. On the theory end of the spectrum, this lack of competition actually hurts capitalism^A) because competition is one of the main mechanisms that guarantees competition and other stuff. This also isn’t a new issue and is visible basically from the start of capitalism all the way until today, meaning it’s a structural flaw.

This article will be better-organized in the future.

^A) Though, eager Marxist, this doesn’t mean that Marxism/Socialism works either. All you’re doing in that case is creating a state-run monopoly, which doesn’t address the issue at all.