Competition is Pivotal to the Sustenance of Free Markets

Posted by: on Apr 18, 2013 | No Comments

It is a fact that the biggest and the most successful business organizations in the world today are the ones that face the most competition in their respective industries domestically. Another well established fact is that nations and states that practice economies that come closest to being ‘Perfect Competitions’ have, not just the most satisfied and prosperous consumers, but also the best overall gross outputs and growth rates.


The role that open competition plays in keeping markets free and fair can never be overstated. Unrestrained and deregulated competition is the most evident and obvious solution to many of the economic vices, crises, and impediments faced by a growing number of countries today. It has an inherent tendency to boost innovation, entrepreneurship, and productivity, and always results in dynamic markets and consistent economic growth in the long run.

Competition is the Checks and Balances of Economic Activity

Self interest of opposing market forces can sometimes lead to corruption, wealth concentration, and economic subjugation. But never for long. That is only if competition is not restrained or manipulated by vested interests. Competition always bounces back. How long do you think the only baker in town that produces sub-standard bread, sells it at exorbitant prices, and makes a small fortune out of it, will remain in business, before another bakery shows up in the neighborhood? This can only happen in a regulated, government controlled environment.

It is not that free markets are not regulated. The difference is that they are self regulated. Yes, free markets are self regulating by nature. As long as there is no interference with the number or volume of competition in the market for a particular type of product or service, the opposing self interest of buyers and sellers will keep upholding an organic equilibrium. The short term can always throw up fuel for the anti free markets fire. But in the longer run, the “invisible hand” will always enforce natural justice and make the necessary adjustments.

Should Governments Regulate Market Competition?

So what role should government play in all of this? Does it even have a role to play? Is there any case for it to become a regulator of competition in a market economy? There are several schools of thought on this with minor to major degrees of separation. But all can be broadly categorized into two – the ones that are against it, and those who advocate it. The arguments in favour of government intervention in the economics of a country can have only two tenors. One is a matter of motive, the other, of misunderstanding – or more precisely, of misinformation.

Those who have the intention of enjoying greater economic fruits than they deserve by bypassing competitive forces, try to introduce artificial controls for economic competition. And more often than not, government is their tool of choice. Others show apprehensions of malpractice and greed which might turn self interest into selfishness, and hence call for regulatory action. But as Adam Smith wrote in Wealth of Nations, “You think you are helping the economic system by your well meaning laws and interference. You are not. Let it be. The oil of self interest will keep the gears working in almost miraculous fashion. No one need plan. No sovereign need rule. The market will answer all things.”

Competition and self interest are the two centre pieces of free markets. There is no greater economic motivator than self interest, and no better regulator of economic activity than open competition. When coupled together, they become the “invisible hand” which makes sure that things go to those who need them the most.


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