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Letter to the Editor, Wall Street Journal
The debate on competition instigated by Peter Thiel’s article ‘Competition is for Losers, Review September 13’ begs some comments. It is an accepted economic truth that competition drives down profits. However, the company that wishes to make profits develops a cost strategy that maximizes the sales of its products to attract as many consumers as possible. A company must address the issue of cost structures among other things, if it is to be competitive. Thus, it is altruism to generalize the issue of competition based on low price only. Those companies which position themselves at a high price level do not fair better on profitability than those that embrace the low price approach. Capitalism reigns over the most efficient economy and offers the widest choices for consumers. After all, it is the consumers who drive the profits. The enterprises that continuously innovate in order to lower costs and remain competitive will always win in the long term.
Thiel’s claim that competition and capitalism are opposites, is fallacious. Competition is the foundation of capitalism. Lack of competition, in any economy, leads to mediocre products since there are no incentives to innovate. It is one of the reasons why socialist and communist economies failed. Thiel also confuses market power with monopoly. Monopoly is a theoretical construct used by economists to describe a market where there is only a single player. Market power, on the other hand, is the measure of the ability of the enterprise to increase its prices without affecting sales and, hence, increase profits. Google is more profitable not because of the monopoly, but because it can attract more consumers, and, consequently, gain bigger market share.
In conclusion, the views presented in Thiel’s article are incorrect. Stating that competition is for losers is misguided and unsubstantiated. Competition is healthy and is embraced by large and small economies and businesses alike.
