Much of our life involves constant competition with other humans – from school admissions to job applications – while economists celebrate competition between businesses for giving us better, more diverse choices. But is competition always the hero? Using examples from SHEIN, Palantir, Samsung and Boeing, Nghi Nguyen asks whether market competition can sometimes be harmful rather than helpful.
Much of our life course seems to be driven by competition with other humans, from nursery places as toddlers to university admissions and jobs later in life. This competitive culture scales easily as corporations fight for market share and nations for geopolitical dominance. It seems the only way to exit the arena is to leave society entirely.
Why do we compete? Standard economic theories may argue that competition helps allocate resources “efficiently”. Others claim that competition drives us to do our best. While not without merit, this obscures a fundamental feature of human behaviour: we are just as driven by cooperation. But cooperation versus competition is for another time. Here, I focus on two narrower problems with market competition.[i] First, it can encourage product homogenisation and create waste via ‘herding’. Second, it sidelines non-monetary values from decision-making.
Ideally, market competition should stop monopolies and give us better, more diverse choices. However, we often ignore one thing – business ideas need to be commercially viable – which goes beyond just product quality. In some contexts, the modern market has been reduced to a “survival-of-the-fittest” game that ensures the most ruthless, and often already advantaged, win.
Market competition can create waste via herding – where companies imitate whatever works both in product ideas and business strategies
Businesses today often need to capture mass appeal for economies of scale. This encourages companies to favour product ideas that cater to the greatest number of people. Being palatable to the masses does not always mean the product is best; it simply means it is ‘good enough’ for the average consumer.
For example, the most popular music in a given era often clusters around similar genres, chord progressions, and timbral palettes. Competitive pressure can incentivise producers to exploit specific features to attract a larger audience. An analysis of Billboard Hot 100 songs between 1958 and 2016 found that musical differences between charted songs have decreased; essentially, top hits are becoming more similar to one another. We also see this convergence in social media platform features and video games.
The race for mass appeal might be deemed ‘efficient’ as companies fight for market share. But competition can discourage uniqueness, wasting potential and reducing diversity.
This pressure to capture a large market share can also induce ethically questionable behaviour. Theoretically, market competition selects winners to ensure the ‘best’ ideas survive. Yet, modern marketing practices have long capitalised on consumers’ cognitive biases, using tactics such as 99-cent pricing, frictionless subscriptions, and artificial scarcity via countdown timers. Sometimes they just directly mislead customers, e.g., wellness product marketing. Meanwhile the tech companies are making hundreds of billions in ad revenue.
Today’s attention economy exacerbates the problem. Businesses compete not on product quality but on attention, generating waste in two ways. First, it advantages companies willing and able to spend on advertisements, crowding out those that do not. Second, it nudges customers to purchase products they do not need.
Competition ignores non-monetary considerations
Fast fashion companies such as SHEIN provide a stark example of what happens when competition does not take account of externalities. SHEIN rose in popularity thanks to low prices and trendy clothing ranges. Despite a plethora of critiques concerning its environmental impact and labour rights violations, SHEIN continues to grow rapidly – reportedly making over £2 billion in the UK alone in 2024 (a 32% increase from 2023).
So yes, buyers flock to cheaper options thanks to SHEIN’s competitive edge. But for businesses and customers that care about the social costs, the alternatives may be unattractive. Sustainable products often cost more to produce. With high inflation, however, consumers often cannot afford the premium, and companies that do reflect concern for environmental and social impacts can consequently fail to reach the scale they need to survive.
Another example is Palantir, a highly innovative but controversial B2B company specialising in big data and AI. Despite the constant controversies over its ‘surveillance tech’, the company’s stock price went up by over 400% in the last five years and recently struck a deal with the UK Government. Companies compete not only in the consumer market but also the equity one, and investors often care only about future growth and profit, ignoring societal costs.
Trade-offs in policy
Beyond price, competitive pressure can inadvertently create implicit trade-offs in quality. Remember the Galaxy Note 7, whose batteries caught fire in 2016? Analysts suggest that to compete with Apple’s iPhone 7 (released in the same year), Samsung rushed its production process and opted for aggressive design choices that were riskier.
Similarly, Boeing’s 737 MAX was a direct response to the Airbus A320neo. To avoid the decade-long cost of designing an entirely new aircraft, Boeing modified an older design by fitting it with larger engines. This changed how the plane flew, requiring a new software system (MCAS) to adjust its behaviour. The modification allowed Boeing to avoid additional pilot training costs and use their existing regulatory certification. However, the development process was controversial even within Boeing. Not only was the new system poorly designed, Boeing also failed to adequately disclose it to airlines or pilots to preserve this competitive advantage.
Competition drives progress, forcing companies to innovate or die. However, few innovations are the result of existential corporate panic. Many breakthroughs such as penicillin, Teflon, the microwave and Wi-Fi were born from curiosity, chance or the luxury of time. Others, like the internet, resulted from decades of cooperative research. Innovation takes time and requires a margin for error, a safety net where failure is a learning cost, not a death sentence.
Market competition can inhibit this safety. When a business is fighting for survival, it often cannot afford to follow curiosity; it must follow the money. Rather than inventing better products, companies are pressured to ‘innovate’ in ways that extract money faster – through planned obsolescence, addictive algorithms, or deceptive marketing. We force innovation where it doesn’t belong, pushing companies to be creative not in how they help us, but in how they exploit us. This trade-off is well-understood in competition economics, whereby competition incentivises companies to innovate but on the other hand reduces the resource and time they have available to innovate.
Bounded rationality[ii] and asymmetric information[iii] are features, not bugs. Seen in this light, the scale of Big Tech companies may not be explained solely by superior ideas or monopolistic behaviour. Additionally, scale may also reflect the nature of modern innovations, such as AI, which require enormous capital investment, vast datasets, and highly structured human coordination. Some products and services further benefit from network effects (e.g., consumers often prefer media platforms used by those they know). If this is the case, corporate giants may emerge not only because of market flaws but also because of market needs.
Given these policy dilemmas, the issue is not how to perfect competition, but how to design policy so that the benefits of competition can be attained while avoiding the negatives that are so evident in today’s markets.
I would like to thank my friend Kaleb for our many conversations that have inspired this piece.
[i] Competition is defined loosely as a scenario where two or more parties compete for a common prize which cannot be shared, to distinguish it from a stricter definition in the economics literature.
[ii] Bounded rationality refers to the concept that humans make decisions that are satisfactory rather than optimal, due to limitations in our cognitive abilities.
[iii] Asymmetric information occurs when one party has more or better information than the other in a transaction. For example, a company knows more about its own product’s quality than the buyer.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
