The myth of a competitive free market

It is often asserted that capitalism is defined by competition, a competitive free market. But how many markets are actually defined by real competition? For most things the price that the at most several large suppliers or buyers have converged on must just be accepted. Most businesses operate in established markets with established suppliers and customer bases and are not engaged in daily struggle of cut-throat competition with survival of the fittest.

How many markets have many sellers and many buyers? The stockmarket comes closest to this ideal in a sense, as there are many company's shares being sold and many investing in shares (the institutions actually mediating the transactions is another matter). Though even here large institutional investors have increasingly excluded smaller players in a meaningful sense from having much influence.

However other than the stockmarket which is in a sense artificial, other examples of actually competitive markets are few and far between. Perhaps the housing market, especially as it is increasingly and unfortunately less constrained by geography with interstate and international buyers. What else? Restaurants, are an example of an ongoing competitive market at least in cities, with many entrants supplying, and of course lots of people eating, and established players still having to compete to survive.

Entertainment provides some competitive markets, actors and productions especially, and, productions and platforms currently, though this recent phenomenon of many platforms will likely consolidate and most of the significant new players are leveraging their dominance in other markets. Facebook TV is coming. Musicians and platforms arguably, though there are still predominant labels. Authors and publishers/platforms somewhat more recently, though historically large publishers dominate and Amazon arguably supplanting all of them. Standup comedians are actually very competitive and less constrained by a mediating oligopoly like other entertainers. 

Generally competition is suggested by a lot of people entering the market and failing, or getting by on slim margins, and a few doing well but continuing to have to work for it. But other competitive markets beyond those above...? Not too many. Often there are many outlets, but with essentially a local monopoly, and/or also subject to some monopoly or oligopoly one step up the chain. Professionals traditionally had some competition though limited by access to the profession and geography, and increasingly they are subsumed in large firms.

A look back at many of the competitive markets shows they are dominated by individual talent which will inevitably decline and die making room for new competitors. Where markets are based on corporations, virtually everywhere now, corporations that are in a sense immortal, there is less competition. Where markets are based on patents and control of intellectual property, that is government granted monopolies, held by corporations rather than creators there is inevitably less competition.

Competition is not open ended, over time someone (or a small group) will inevitably win, which would be the case if all competitors started on an even footing, and even more so in the economy where they don't. This process is somewhat obscured and ameliorated by new markets forming but that doesn't effect the dominance of the pre-existing market even if reducing its size and importance. Microsoft still dominates in the desktop operating system market despite the emergence of other bigger IT companies in other markets.

In most markets the competition, if there ever was any, has long since devolved into an oligopoly or monopoly, or in other parts of the supply chain a monopsony or oligopsony. Even for above exceptions we see large institutional investors coming to dominate the stockmarket, housing stock getting concentrated in fewer and fewer hands, and McDonalds and other large fast food restaurants.

Economic competition is more like punctuated equilibrium in evolution. Disruptive innovation happens, but then the market settles down again into a new balance without any real competition. Competition is the exception not the norm. What competition there is largely restricted to emerging markets, or those based on individual talent, or those that are essentially gambling, speculation largely divorced from any underlying productive asset.

Our system is also set up to let large companies stifle competition by buying up innovators, or using market power and or corrupt influence with government against them. `Consolidation', `rationalisation' obviously means less competition. This was in the past somewhat recognised by the creation of anti-trust measures, though in practice these have been infrequently utilised, and should be revitalised. However firstly it is important to acknowledge the fact that a competitive free market is basically a myth.