Competition definitely favors consumers. Without competition, companies become bureaucracies that become insensitive to consumer needs, react very slowly to consumer requests for service, as in months, kind of like Comcast and TWC, they fail to do things efficiently so prices go up, and they fail to innovate so products don't get better.
Competition turns things around. In order to please the public to make sales, companies have to address consumer needs and requests, and keep prices low, and come up with innovations that make their products better and less expensive to buy.
For a tutorial on what competition means to business, consumers, and the economy, read the excellent book, Commanding Heights, by Daniel Yergen.
Most people are price sensitive buyers, and most business to business purchases go to the lowest bidder. Price competition is a fixture. I contend that this constant pressure to be price competitive creates over-competition, so that in the end it is destructive to consumers.
Between competition and stock market pressure, to be constantly reducing the price, companies have to cut the price of production. To cut the price of production, a company has to reduce the cost of materials and distribution, or reduce the cost of manpower, or cut the cost of taxes.
To accomplish price reduction, companies have to either keep wages down, or cut the size of the workforce. If they are at rock bottom on personnel, they merge with another company and eliminate duplicate jobs, and within three to five years, they eliminate the other company's workforce. This all means that jobs go away and there is downward pressure on wages. This results in a never ending quest to reduce jobs and wages. It is a race to the bottom.
There are a lot of factors involved in competition. US manufacturing now accounts for only 12% of GDP, because manufacturing has gone to countries with lower labor costs. Of course, that means fewer jobs for the US.
Manufacturing is more important to the economy than any other sector. We should be doing more of it and not exporting it. "For every $1.00 spent in manufacturing, another $1.37 is added to the economy, the highest multiplier effect of any economic sector." - National Association of Manufacturers
Automation displaces workers, although this creates a few new jobs for those who oversee the process. The total impact of robotics is not clear.
The jobs that AI can't replace, or program on BBC iPlayer
Don’t blame the robots for lost manufacturing jobs - Brookings Institute
Merger mania makes a comeback - USA Today article
America's Advanced Industries - Brookings Institution
Products created in other countries compete in the US marketplace, and generally at lower prices than US made products. Nearly all products found in most retail stores are made in another country.
Another important factor is demographic trends. Companies depend on new markets for business expansion, so that they don't have to cut prices so much. The US population is reaching zero population growth, just as Europe did over a decade ago. People already in the US aren't reproducing at a rate that keeps the population growing.
The Great Recession even brought a pause in population growth. The only population growth comes from immigration, and the Census Bureau projections have lowered projections for Hispanics. So population growth will steadily slow, and within a few years, there will be equal amounts of people at all age levels, until around age 90. Market expansion will be dead. To cut costs, companies will have to cut jobs.
Population projections for the United States from 2015 to 2060 (in millions) - Statista
With fewer new arrivals, Census lowers Hispanic population projections - Pew Research Center
The stock market is also an important factor. Companies sell stock so that they can expand their business with additional production or additional products. The stock market is an endless drain on companies. Stock isn't like a loan that companies can pay off. They pay dividends on their stock forever.
The drive since the 1990s has been for stock holders to pressure CEOs to do things to raise the price of stock. CEO compensation is based on stock price increases. Dividends have become secondary, while instant and continuous gain has become primary. This puts additional pressure on CEOs to cut costs and to innovate. In reality, companies would be better off borrowing money from a bank.
Profits Without Prosperity - Harvard Business Review
Social Costs of the Financial Sector - Economists Review
Wall Street Vampires - Paul Krugman, economist, NY Times Opinion columnist. (Note: I'm cautious about quoting Paul Krugman because of his bias, but his opinion is well worth reading.)
Note: Banks have a very influential effect in making possible economic expansion. The finite amount of money available to save and use, is multiplied up to 10x by borrowing and saving transactions. The Stock Market (Equity markets), not so much - mostly seen as a constant drain (rent). See Where Does Money Come From.
Economic thought that influenced political economic philosophy, has taken us in the wrong direction. Today’s big U.S. economic trade-off isn’t equality or efficiency - Heather Boushey on Washington Center for Equitable Growth
Competition may encourage businesses to do things that are harmful in practice.
Comments on competition from Lazonick (Sustainable Prosperity) helps us understand that while the outcry in business is that they have to cut costs because of competition, what appears to be happening instead is that CEO incentive to cut costs is simply driven by the stock market, to drive up the price of stock.
Enterepreneur Margaret Heffernan, who studies competition, was quoted in an article, America’s Competition Fetish Produces Human Sheep. Competition can prevent collaboration, especially if people never learn how, can influence business to follow corrupt procedures to keep up with other businesses doing the same thing, leads innovative companies to simply copy each other, and simply encourages corruption.
Alfie Kohn, in his book, No Contest, posed the question: "Do we perform better when we are trying to beat others than when we are working with them or alone?" He made the finding, "But the evidence is overwhelmingly clear and consistent that the answer to this question is already can be reported: almost never. Superior performance not only does not require competition; it usually seems to require its absence."
In my own experience in 12 years of management of a field organization, in a Fortune 10 company, competition simply pits people against each other. I had much more success with people by just setting goals. For example, to counteract huge field inventories and hoarding, I had them work together to come up with a standard inventory, and they voluntarily reduced the inventory 50% with no drop in service quality. - Building Effective Organizations
Competition in the business world can have the effect of bringing costs down and improving products and services. This was clearly illustrated in the book, The Commanding Heights, by Jared Diamond.
When you have over-competition, the goal simply becomes to win at any cost. What you see happen is people taking every shortcut they can, such as cheating, corruption, failure to invest in innovation, and lack of collaboration.
Downward pressure on jobs and wages comes from foreign products, job exports, robotics, mergers, lack of market growth, lack of innovation, and the stock market. It is a perfect storm of pressure that creates a race to the bottom on jobs and wages. It is an overly competitive landscape.
Because of this, people can't find good paying jobs, can't find jobs, can't get jobs with benefits, and more and more people become dependent on government benefits.
Competition is a good thing. But what is the end-game? Full unemployment? Zero wages? We need to take this seriously before we achieve these destructive goals and lose it all.
I'm thinking more and more that the economy is local. The National GDP is irrelevant. It is not an indicator of the prosperity of citizens, or even the economic health of a country.
More and more companies are moving headquarters to nations with lower taxes, even though the US tax is moderate. Begin slapping an import duty on companies that sell in the US, to cover the cost of lost taxes, especially local taxes. We may have trade deals with countries through the Federal Government, but the states can impose their own taxes. This will help US manufacturing and jobs. That doesn't make the US states protectionist or isolationists, just wise.
CEO pay needs to be de-linked from stock market profits.
Mergers need to be more rigorously scrutinized for economic impact.
Robotics needs to be offset by new jobs.
Companies who export jobs should be paying a penalty.
Companies uniformly despise regulation, but the goal of regulation is to level the playing field among companies, and to preserve the economy. When the same regulation applies to all companies, such as minimum wage increases, the competitive landscape and individual impact on business remains the same.
The impact of regulation - Mckinsey & Company
Five Areas of Government Regulation of Business - Small Business Chronicle
Another factor in the continuous slip of wages is the Fed's policy on inflation. The Fed sets a target for each year, usually between 2 and 4%. The Fed believes this is healthy for business in that it encourages price increases that keeps businesses healthy. But it has a very negative impact on the citizens.
One economist says, "A two percent inflation rate—the Fed’s target—reduces the purchasing power of $50,000 to $30,477 in 25 years." - Bob McTeer, former Dallas Fed Chairman: Is 2% inflation good? Bob McTeer on Forbes.
This erosion of purchasing power is exactly what we are seeing happening to wages, which aren't constantly slipping in power and not keeping up. The Fed needs to reign back inflation goals to no more than 1%.
Capitalism, despite the wishful thinking of some purists, can be very destructive, and it doesn't regulate itself. Individuals and small businesses are being badly damaged by an economy that is out of control. We have to reign it in.
The Impact Of A Dollar - Part 9