seawasp | Why Competition Doesn't Work...

Forgot to insert the CUT...

One of the touchstones of the capitalism movement is the idea of free and open competition of companies and their products. The theory is that if you're selling a product, say, hamburgers, and there's other people selling hamburgers, as an industry the different hamburger producers will be competing for market share, and they'll do this by finding ways to attract more customers to their particular hamburger; some will offer a very inexpensive hamburger for the low-cost market, others will make flame broiled rather than fried, others will make bigger and fancier burgers for a more upscale market, and so on.

And in a naive sense, it appears that's the way it works; we can all point to various examples.

But in reality -- especially when dealing with large-scale corporations and not a mom-and-pop operation -- it's way more murky than that, and in fact, what we think of as market competition is almost utterly irrelevant.

There's a lot of reasons for this; one is that the individual consumer is rarely as informed in their choices as the Free Market Maven wants us to believe; the average consumer is just trying to get something "good enough" and "good enough" is often "what I've used before" or "what I hae heard of most often". We don't have the time or patience or money to sample all the different peanut butters, toothpastes, hamburgers, flours, or even cars available.

So right off the bat, the idea that the competing stores can be drawing in customers based on being better on some dimension becomes suspect. About the only dimensions that are obvious to someone making quick choices are size and cost. Taste, processing, quality of ingredients, etc., none of these are easily accessible to the consumer.

Far more important, however, is that corporate law does not support consumer satisfaction. This sounds ridiculous, but in fact it's absolutely true. Law and corporate custom focus on shareholder value. Unless your company is, essentially, privately owned by a small number of people with a personal interest in the product, the purpose of the company is not to provide a product, or even keep customers happy; it's to pay returns for stockholders. If a corporate CEO were to propose a course of action that would EVENTUALLY result in large profits and happy customers, but would require slower growth and greater effort for ten years, it takes only ONE disgruntled stockholder to have that CEO held responsible for failing to uphold their fiduciary duty.

This means that companies that are ostensibly about some kind of product (computers, food, whatever) are in fact about maximizing (usually very short term) shareholder value. Red Lobster, one would expect, is in the business of providing decent seafood at decent prices, and certainly its advertisements promote that view. However, the OWNERS of Red Lobster aren't restauranteurs or food people, and have no interest in the quality of the product as such. In fact, following the company's purchase, their new owners realized that they could separate the restaurant business from the real estate on which the restaurant operated, and then began charging RENT to the restaurants that formerly had effectively owned the land they were on. It was this approach, and not a misjudged "endless shrimp" campaign, that nearly destroyed the entire brand.

Similarly, once the Boeing Company stopped being run primarily by engineers -- whose interest was in producing the best planes they could to meet various specs -- the company quickly developed new priorities based on the share prices rather than on the quality of the product. They outsourced formerly in-house operations, spreading the technical skill and knowledge base thinner and creating many more opportunities for mistakes to be made at the interfaces of those outside vendors. They pushed for faster production of new designs and reduction in costs -- and in personnel -- as these allowed profit-making announcements to be made regularly, pushing stock values higher. Eventually, this came home to roost and the planes started literally falling apart...

... but this didn't really come back to haunt the responsible parties. It rarely does, unless those parties make the mistake -- as Bernie Madoff did -- of trying to scam the guys who are used to running the show.

Social media shows this kind of thing in the purest form: it APPEARS that the product is a method of social communication, a virtual place for people to meet and talk and show each other stuff. But most of these platforms, once they pass a certain threshold, start to change from a "service provider" to a "marketing resource" -- with the users being the actual product on sale. That's why Facebook no longer shows your posts to all your friends, or even shows you most of your friends and instead shows ads and groups and reels. You the user are the product and it is the advertiser who is the actual user now, the customer -- and even the advertisers are only INDIRECTLY the customer, as the true customers are the stockholders who want to see their profits rise, and thus insist on cutting costs in areas that will inevitably "enshittify" the company's product.

As others have pointed out, this is a process that can go on for quite a while, and when it breaks, it does so decisively and suddenly, often from an apparent cause that's far smaller than would be expected. The owners see a sudden drop in users, a sudden exodus of customers, and think "okay, we took one step too far, we'll back up", thinking things will go back to normal. But they won't, because what's happened is that people have become increasingly unhappy for a long time, and once they decide to leave, all the negatives that made them unhappy are a barrier to recapturing their trust and interest in the product. It's not just that one last decision; that was the pebble that started the avalanche, but picking up that pebble and moving it back won't stop the cascade you've already set in motion.

All of these things mean that the idea of a company CARING about what it does, and being GUIDED by the reaction of its customers, is the vastly rarer exception rather than the rule.

If one wants market competition to actually have the effect desired? There's a hell of a lot of case law, and corporate structure, that has to be changed. For instance, you can't have people who just invest in multiple things to make money. They aren't vulnerable to, and thus not affected by, a failure of the market on the part of any individual company. If they're invested in breakfast cereal, medical supplies, heavy equipment, oil production, and video game production, the fact that one company goes over that avalanche edge and its cereal tanks means NOTHING to them. They'd have to have a catastrophic failure of a dozen companies for it to mean anything.

So anyone financing a business venture would have to be invested, themselves, in the success of that business. They'd have to be laying down enough to make them personally concerned in the quality and service rendered to the actual customers. Moreover, they'd have to be required to KNOW something about the product or service involved, so you don't have the problem that's well-known in SpaceX and Tesla, of having a major boss who THINKS he's a genius and you therefore have to have an entire department of people devoted to keeping him from screwing things up while letting him think he's still the boss.

The problem with this entire issue -- and many other major political and social/economic issues -- is that human beings can't really grasp politics, business, or anything involving too many people. We're tribal by nature, social but in relatively small groups. We can't even BEGIN to understand the interactions and connections between a hundred million people in ten thousand different fields of endeavor. Elon Musk has hundreds of billions of dollars in assets -- does he UNDERSTAND what that means? Can he, or anyone, actually grasp what a hundred billion dollars is? How many people he affects with every choice, and how those effects ripple across the entire globe?

Of course he can't. No one can. And that leaves aside the more human element of whether you actually understand the pain or joy your choices create, and how much that's magnified by how many resources you have -- and how many resources your fellows have.

There's no single, easy solution to this kind of problem. You can't make people grasp all the consequences of their actions; you can't create empathy in trained sociopathy, and yet SOMETHING has to be done to make major companies -- and governmental departments, and so on -- somehow responsive to the needs of people, to gain an awareness of the Spider-Man dictum -- that With Great Power Comes Great Responsibility. We have mostly lost the idea that the people running companies are RESPONSIBLE for what those companies do, and should be held accountable for it. Modern investment approaches, in fact, run counter to that idea; there's no responsibility for the actual corporate actions except in a purely fiduciary sense.

Human civilization may USE money; but it cannot be BASED on money, and that is, unfortunately, what we're seeing.