Competition and the market

John Maynard Keynes was either an economic criminal or a genius. Possibly, he was both. Regardless, he had a well developed sense of humor and a way of making a point.

Here is one of his more penetrating thoughts: "Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist."

Ideologues, generally of the right wing variety, often claim that the market can solve all problems. They are slaves to the thoughts of Adam Smith, who died in 1790, and lived in a much different era.

Competition usually works but, if there are significant barriers to entry into the market, whether they be capital, regulation, time to construct a factory or facility, or something else, then the market will not work well and sometimes not at all.

In Adam Smith's day, there were few barriers to entry into a business.

By comparison, just try building a power station or an oil refinery now: raise a few billion dollars, attempt to cope with all of the Federal, State and local regulations, hire many lawyers and spend years in court defending yourself against environmentalists and those who just don't want you near them. Then, after many years, your project may be complete and you can begin to compete.

But while you were waiting to enter the market, the existing players were taking their customers to the cleaners. And when you finally get there, the rational action is to compete, but not too aggressively, because, as in your case, new competition will have a hard time getting started.

If you still persist in believing that the market always works, I recommend that you think about the situations that fall into the category of "the tragedy of the commons". If that is too complicated, think about the telephone company where overpricing and abysmal service abound.