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Friday, February 3, 2023

When Competition Goes Wrong

A recent paper provides a good example of how most people's view of competition, and the benefits it produces is slightly flawed. Understanding these examples helps ensure that competition is applied correctly. In the paper, researchers learn that as more health providers were allowed to prescribe treatment, more treatments, specifically opioids, were overprescribed to the point of harming patients. If you think about this for a moment, you realize it is because the competition between health providers was driving them to provide what consumers wanted--more opioid prescriptions. So, this is a case where competition is harmful, but it helps elucidate what competition actually does.

Many people think competition produces low costs, low prices, high quality goods and services and is unconditionally beneficial, but what competition actually does is push producers and sellers toward whatever the consumer desires. For most goods and services the desires of the consumer are beneficial to her and to society: high quality, low price cars, groceries, homes, computers, etc. In the case of opioids and other products that are beneficial in limited quantities yet are harmful in higher quantities, competitive forces benefit neither. This is due to the addictive nature of opioids. Consumers desire more than is good for them and so competition among providers results in what those consumers mistakenly desire.

Vehicle Inspections

This phenomenon is not limited to opioids. When I was in graduate school, I learned this concept from a fellow student whose Ph.D. thesis analyzed vehicle emissions inspections. He found that more inspectors led to more cheating. The reason was the same. While the inspectors were meant to be acting as agents of the state, their true customers were the vehicle owners. The vehicle owners' goals were not to have low emissions but to get a Pass from the inspector and so the more inspectors there were, the more they were driven to give consumers what they wanted to the detriment of state regulations.

News Media

The history of media consumption in the United States is an extremely illustrative example of this. From the advent of television until the 1990s, there were a handful of broadcasters vying for ratings. Up until the expansion brought on by cable, they fought with each other to appeal to the broadest possible audience. This focus on the highest possible rating coupled with journalists' ideology led to a slightly left-of-center framing of news.

Seeing an opportunity to provide audiences, particularly conservative audiences, with less available news and opinion, Fox News was created and quickly attracted a huge contingent of conservatives across the country. This led to the creation of its doppelganger MSNBC which appealed to liberal audiences. Then, the internet ushered in the further fracturing of the media landscape and ever more gradations of content to satisfy extremists and moderates of both sides (though notably, nothing to appeal to people who want objective journalism). Competition between news media companies has thus created a spectrum of information providers that reflect the biases, particularly confirmation bias, and whims of the entire electorate.

Artificial Intelligence

The next battlefield over which competition may eventually do us in is AI. Several companies have been working on AI for several years, but have been reluctant to offer AI-based services to consumers. Now, with Microsoft purchasing Chat GPT, which is already offered to the public, and also planning to integrate it into its offerings, other companies will feel the pressure to do the same. This will certainly kick off a zealous competition between these companies to further the capabilities of AI in an effort to provide their customers with an amazing product for a low price, meaning an ever-more advanced artificial intelligence that could potentially rival or surpass our own.

Many have pointed out the risks of AI advancement, but for the past ten years, development has been slow and of low concern. Now that companies have entered a new era of competition to provide it to consumers, though, growth will take off. Hopefully, not to our ruin.