The Finance Minister of India Mr. Arun Jaitley at the National Conference on Public Procurement & Competition Law recently said that,
We wanted multiple players because they would ensure the largest consumer interest. But there can be several other impacts. Excessive competition, at times, can result in pricing of a nature that that sector of the economy can itself face stress. Because everybody then tends to follow the leader, and therefore what do you do in such a situation?” “And these are all challenges that will emerge as the economy moves further and expands further. (emphasize added)
Is this supposed “excessive competition” a problem? Should Mr. finance minister worry about the stressed entrepreneurs? Let us see.
Market and its competition means the entrepreneurs are constantly striving to fulfill the most urgent wants of the consumers. And for that they are constantly innovating about new production technologies and new products. Competition makes sure that only the best entrepreneurs remain in the market so that the end of consumer welfare can be achieved in the most efficient way. As Ludwig von Mises said,
Competitors aim at excellence and preeminence in accomplishments within a system of mutual cooperation. The function of competition is to assign to every member of the social system that position in which he can best serve the whole of society and all its members. (Human Action, p. 117)
This means, if some entrepreneur cannot handle the stress of the competition then he should better stop being an entrepreneur. His business should better either be shutdown or taken over by another efficient entrepreneur. If someone doesn’t know how to produce a bread in the best possible way to satisfy his consumers then he has no business being in the business of producing bread, period.
By shielding producers from market competition the government is only making them more inefficient. In the absence of competition there is no incentive for the Indian entrepreneurs to improve the quality of their products and services and lower their prices to serve the consumers in the best possible way. Such anti-competition policies will only breed lazy bum entrepreneurs, and India is already full of such lazy bums.
Moreover, by thinking only about the inefficient producers the finance minister is forgetting about the consumers, who are the ultimate target of all economic activities, and other efficient producers, who will be harmed by this inefficient producers who will stifle competition by using government’s regulatory mechanism because they cannot handle the stress! As Henry Hazlitt would have said, Mr. finance minister is making a mistake of only looking only at the immediate effects of competition on one group of inefficient producers, and forgetting the long-run effects both on consumers as a whole and on all other efficient producers.