Competition – A Sin or A Necessity?

“Competition is a sin.” – John D. Rockefeller

John D. Rockefeller believed competition was a sin.  But why?  Do you think it could be that most big businessmen and businesswomen prefer to not have competition?

Of course.  Competition to them means more work and more costs without necessarily any more profits.  This isn’t to say every business person hates competition (some thrive on it, I’m sure) but it’s easy to understand why many prefer to be the only business with that particular product or service.  I’d be lying if I said it wouldn’t be nice if my blog was the only one on the net and everyone had to read it.

But what about the consumer?

Competition to the consumer is necessary in order to ensure we are getting the best possible product or service at the best possible prices.

Those in the computer industry know this all to well.  I remember my father purchasing a computer in the mid 1990s for $2,000 and it was a 60 MHz Pentium 1, had a CD drive (CD burners hadn’t even been invented yet) and the hard drive was less than 1 GB.

Now for $200 (even aside from Black Friday sales) you can purchase a computer that is a Pentium 4, 2 GHz (2,000 MHz) and a 500 GB hard drive.  1/10th the cost yet 33 times more speed and over 500 times the hard drive space.  Not to mention it will come with a DVD burner, not just a boring CD-ROM drive.

What is the cause of this and all other electronics getting cheaper and cheaper?

Cheaper supplies and labor have a little bit to do with it.  But primarily it’s competition among various companies.

This is one reason I’m not a fan of Apple – they don’t allow others to build computers under their name and their monopolistic tendencies means not only less profits for them (something their okay with since they’re rolling in dough already) but more expensive product for the consumer (a 2Ghz, 250 GB Macbook with DVD burner is $1,000).

Mac fans will argue, though, that Mac is better and different and that I’m comparing apples (no pun intended) to oranges.  It’s true that the Macbook cannot be compared directly with PCs since the processor, batteries, customer service, etc are all different.  But when it comes to a machine that fits in your lap, gets you online and lets you blog, write, surf the web and watch youtube videos, they both take care of the job.  The one with competition just does it cheaper.

Let’s look at the airline industry.  You have the ability on some airlines to take a flight from $60 to $100 in some instances (granted not common but it is still possible) to fly somewhere cheaper than you could drive your own car.  Not to mention, much faster and more convenient than having to drive as well.  And the reason why some airlines charge $100 for this ticket instead of $1,000?

Pure and simple.  Competition.  Without competition, airlines could, and would, charge much more for tickets.  When they have to compete, however, their prices drop dramatically.

Without competition the consumer gets the short straw.  It’s as simple as that.

Next is Microsoft.  There is competition for Microsoft, mind you, but Microsoft’s products are much more convenient and popular to use as the competition as it is to just stick with Microsoft.

Sure you can use Apple – but you give up things such as the right click option and you have to learn the new operating system, layout, and limited installation options (i.e. fewer programs/games available for Mac as compared to Windows).  Sure you can keep your right click option and go with one of hundreds of Linux distribution options but even as an ametuer techie geek I still find learning how to install/upgrade/run linux a little cumbersome.  They’re definitelly getting better though.

And yet, with little competition, Microsoft still charges hundreds of dollars for their software.  Meanwhile, Linux is free and still can’t compete.  According to marketshare.com Linux only held .86% of the market share for operating systems in October 2010 while Mac was at 5% and Windows was 91.09%.

But why is competition so important?

You can use various analogies to explain it but one of the best is athletic competition.  Imagine how exciting the Olympics would be if there was only one person “competing” in each category?  Sure it would be great if you’re the only one competing (if you only cared about winning medals and not about being better than anyone else anyway) but the viewers would quickly get tired of watching and turn it off.  The fact is the viewers thirst for competition in sports the same way people thirst for drama in a reality television show: it makes it that much more exciting and interesting.

It sounds like I’m just stating the obvious and perhaps repeating myself may seem excessive.  But I believe this, along with opportunity cost, the real vs. nominal wage fallacy, and the broken window fallacy, is one of the major issues overlooked in America.  The truth is, the more competition we have in America, the better products and services we get.  The greater competition for products and services leads to decreasing prices which leads us all to become that much wealthier.

Even though the stogy businessmen like John D. Rockefeller hate competition, the truth is we, the consumer, need it to continually improve our lives and our situation.  And this is true of everything in our life from electronics and airlines to security and money.