Why the market is not a zero-sum game – Dateway

Twenty-twenty marks the twenty-fifth anniversary of a book that has had an increasing influence on the public debate on market competition.

1995 by Robert Frank and Philip Cook The Winner-Take-All company argued that there are a growing number of markets where small differences in performance lead to huge differences in rewards. As John Kenneth Galbraith described it in a review of this book, the consequence is that “he who wins gets everything”.

Since then, I have seen several articles that reflected the win-win-all rhetoric, “a few win at the expense of others” as an accurate description of competitive markets, sometimes even accepting that its fundamental claim was so well established that ‘it could be used as a scapegoat for an ever-growing multitude of social problems.

However, even though technology has dramatically increased the leverage or possible “amplification” of human talent (such as current global markets for artists or large international companies which multiply the economic impacts of business management). higher), this leverage creates greater benefits for consumers, as evidenced by the shift of consumers from who and what they frequent to what they consider best. Therefore, even if the incomes of “star artists” increase sharply relative to others, it does not mean that “whoever wins gets it all”, as this overlooks the much larger positive effects on consumers.

This selective blindness to consumer earnings is crucial because, as Leonard Read pointed out in “A Consumer Looks at Freedom” (in his 1971 book, Then the truth will disappear), people share the most in common in their role as consumers. Therefore, the interests of consumers should be at the center of public policy, rather than the growing incomes of producers who have provided these greater benefits to consumers. For example, Bill Gates became very wealthy through his software successes, but the gains to users through the use of his products have largely eclipsed his gain, and these consumer gains negate any attempt to claim or imply that the rest of us lost in the process.

An analogy to competitive sport adds to the analytical confusion about competitive markets (ie, voluntary arrangements that people make with each other). In Galbraith’s words, “like in sport, so generally in the modern business world.”

When we judge sports from the perspective of those who occupy or hope to be in medal stands, the rewards seem to be awarded only to a few “winners”, although their superiority may be miniscule (e.g. winning one stroke per hundredth of a second). This perspective can be interpreted as implying that most of the participants are losers. However, the winner celebrated at a medal stand or achieving much bigger winnings is significantly different from the victory. for the others which results from competition in the market.

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For the competitor aiming for the medal stand, the relevant “result” awarded is better, no matter how much better. But this view ignores the gains for others as a result of competition. A more precise analogy to the gains from competition in market arrangements is improved outcomes for customers.

In other words, who won the race is much less important to consumers (who don’t just watch the race) than improved results. If the result of the competitive process is that the products or processes improve by 10% in a certain dimension over time (such as with longer distances, higher weights, faster times, etc.), these gains are largely passed on to consumers. And these wins are the result of the competitive process, whether Party A or Party B has “won it all”. The central question is then whether the competitive process at work produces better results than other mechanisms. And competition in the free market has no equivalent to produce better results.

Competition and emulation of what shows up as superior performance in the eyes of consumers all allow us to perform certain tasks better over time. Such increased capacities mean that it is possible to produce more, and that increased production, in a world of scarcity, benefits the rest of society. This makes it a positive sum game, not a zero sum game. Society benefits massively from the “positive externality” of increased and improved products created by competition, which makes ignoring this fact a massive way to go wrong.

To see through the surface of “winner takes it all” arguments, we need to keep an analytical eye on what others generally forget – the expansion of benefits for others as competition drives increased productivity. The rest of us are not losers when someone outperforms their rivals; we all win as consumers when a producer wins through better ways of doing things.

Instead of the usual misguided analogy between athletic competition and market competition, we would benefit from a better description of the process. And perhaps Ludwig von Mises provided the clearest advice on what he called the “catallactic competition” of the markets in his monumental Human action:

Catallactic competition should not be confused with prize fights and beauty contests… to find out who is the best boxer or the prettiest girl…. Its function is to ensure the best possible consumer satisfaction in the given state of affairs. economic data.

#market #zerosum #game #Dateway

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