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What Every Debater Should Know About Economics

#7 Competition increases efficiency and innovation.

Competition is a source of discipline in the market, or in any social organization for that matter. Producers who are earning profits for the time being can rarely afford to rest on their laurels. A single new entrant producing a better, cheaper product can turn those profits to losses very quickly. As long as entry into the market is open, competition (actual or potential) ensures that entrepreneurs stay on their toes by constantly increasing efficiency and finding new, better ways to produce. It is the producer's perpetual "reality check."

When competition is reduced by legal restrictions, regulations, tariffs, or quotas market discipline is partially suspended. Efficiency, innovation, and quality of service are reduced since they are no longer as necessary for the protected industry to stay profitable. When the author moved from Wichita, Kansas to Houston, Texas he learned this lesson first hand. In Wichita, trash collection is a competitive industry. Dozens of local companies offer subscriptions to pick up residential waste. The fact that a dissatisfied subscriber can make two phone calls and change her trash company has resulted in low prices, and excellent service. Companies provide and maintain free 90-gallon trash barrels with sturdy wheels and hinged tops. On trash day (twice a week) they come up to the house to get the barrel and take it out to the street. Most services pick up almost any kind of trash that is left for them -even large appliances!

In Houston, by contrast, the city maintains a legal monopoly in residential waste pick-up. Competition is forbidden. No barrels are provided. In fact, Houston trash collectors won't touch trash barrels of any kind -all trash must be placed by the resident in plastic bags at the curb. What about heavy items that won't go into bags? Houston residents must remember to put those at the curb on a particular day that comes once each month. Sometimes the city will pick them up then. If not, haul the stuff back in the garage and try again next month!

Competition is one of the most important reasons why the market is superior to government as a system for producing goods and services. Those who fear that economic freedom will allow producers to take unfair advantage of people often neglect this fact and call for industries to be tightly regulated or taken over by government. As a rule, these government-run industries are inefficient, costly to taxpayers, and far less innovative than private firms operating in a competitive environment.

Privacy regulations may be a serious threat to competition if they limit the capacity for new entrants to the market to gain critical information about consumers and prevent them from playing profitably on a field where established firms are already quite dominant.