Thursday, January 07, 2010

Fierce, Cutthroat Competition Is Best Regulator

Click to enlarge.

From an interesting article in today's Wall Street Journal "Rivals Explore Amazon's Territory" about the intense "cutthroat" competition among Amazon, Google and Apple (see stock return data above for the 3 companies vs. the S&P500 over the last six months):

All three companies are butting heads after long inhabiting different markets.

1.
Google will launch a phone that it will sell online directly to consumers, and take direct aim at Apple's iPhone. Given that Amazon already sells cellphones online, that could hurt the retailer as well.

2.
Apple's expected unveiling of a tablet computer, likely to have an e-reading function, threatens Amazon's Kindle. Amazon said its e-reader was its biggest-selling product in 2009. The tablet also is expected to offer film and TV shows, strengthening Apple's iTunes as a video service. That could hurt Amazon's video-on-demand service.

3. Google plans to start an e-book store this year, called Google Editions. Consumers will be able to buy digital books that can be read on a range of devices. More important, Google plans to let independent bookstores sell e-books through the service, buttressing their ability to compete with Amazon.

MP: It's exactly the type of intense market competition described in the cases above (and the threat of potential competition from some kids in a basement or dorm room writing code right now to start the next challenger to Google or Apple), and not government bureaucrats at the Department of Justice or Federal Trade Commission, that is usually the best regulator of all, and the most effective protection for consumers against the potential anti-market, anti-consumer behavior of producers.

It's a basic law of economics (Perry's Law) that "market competition breeds competence" (and lower-priced, higher-quality products), and government restrictions on competition and market forces breed incompetence (and higher-priced, lower-quality products), so the more the competition, and the more cutthroat the competition is, the better the outcome for consumers. It's also the case that the "smell of profits" attracts competition, and Amazon, Google and Apple all have stock returns double the 30% market return over the last six months measured by the S&P500, so that redolent attractive odor of profits might be churning up some potentially significant competition right now.


10 Comments:

At 1/07/2010 3:49 PM, Blogger Colin said...

Busted link.

 
At 1/07/2010 3:59 PM, Blogger Mark J. Perry said...

Fixed.

 
At 1/07/2010 4:00 PM, Anonymous SuhrMesa said...

Brilliant Clarity. Obama and Left disagree.

 
At 1/07/2010 4:24 PM, Anonymous Anonymous said...

Wow, the last 100 posts are bereft of html.
What a blog! ROTFLMAO

 
At 1/07/2010 4:41 PM, Anonymous richard said...

Perry's law?

Sure, mark.

 
At 1/07/2010 9:45 PM, Anonymous Anonymous said...

If fierce, cutthroat competition is the best regulator, why did subprime mortgage CDOs thrive? It seemed like everyone played along to get along. For years.

 
At 1/08/2010 12:09 AM, Blogger OA said...

Anonymous said...

If fierce, cutthroat competition is the best regulator, why did subprime mortgage CDOs thrive? It seemed like everyone played along to get along. For years.


Well if the government hadn't bailed out the bad actors, the only competitors left would be the responsible firms and banks. But all the way back to bailing out Long Term Capital (which saved Lehman), everyone knows you have to make your fortune while you can because the losses will be borne by someone else.

 
At 1/08/2010 2:49 AM, Anonymous GregL said...

Just what does stock price have to do with competitive markets when there are no losers? Lets take a look at bank stocks over the same period; anybody want to make the same claim?

 
At 1/08/2010 10:15 PM, Anonymous Anonymous said...

OA wrote: Well if the government hadn't bailed out the bad actors, the only competitors left would be the responsible firms and banks. But all the way back to bailing out Long Term Capital (which saved Lehman), everyone knows you have to make your fortune while you can because the losses will be borne by someone else.

Most citizens don't know the implications of this. If no one is trustworthy, fewer will want to conduct transactions. See recent consumer retail behavior in stocks for an example.

 
At 1/14/2010 5:02 PM, Anonymous Anonymous said...

"and the threat of potential competition from some kids in a basement or dorm room writing code right now to start the next challenger to Google or Apple"

Doesn't is stand to reason, that executives of large companies are afraid of competition, so to ensure that investment is controlled by those in power they keep the fruits of labor at the top lest some wise underling engineer cuts into their profit?

If you are ambitious and talented enough to invent the next google or apple, you have to sell your soul (and a portion of your company) to the VC brokers in order to make it.

 

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