Competition Reduces Profits and Losses
 Competition reduces profits and losses. The reason is plain. When profits in any field are high, new concerns are attracted to that field, and profits tend to fall. When, on the other hand, profits are low or lacking, some concerns are likely to drop out, and losses tend to fall. If, for example, the profits of grocers in any community are high, new grocers are likely to enter the field faster than the demand increases. Then profits tend to fall. But if the losses of grocers in that community increase, some of the competitors are likely to drop out. Then losses tend to fall. If a Huyler's candy shop does well in Times Square, a Loft candy shop appears in search of some of the profits. Such rivalry in any field usually stops at the point where the prospect of profit is not bright enough to attract new concerns. Thus, competition reduces profits and losses. Competition does not always seem subject to this law. There are times, first in one field and then in another, when increases in the number of concerns and in their efforts to take business away from each other increase the losses of all. Such a condition, however, cannot last. Even if rival enterprisers -- taxicab companies, for example -- would like to continue indefinitely in pursuit of policies that entail losses for all, they could not possibly do so. Moreover, this kind of rivalry springs partly from ignorance which is dispelled by the experience itself. The more men know about the causes of such losses, the nearer they come to free competition; and the nearer they come to free competition, the smaller both the losses and the profits become.
Actual Competition is Never Perfectly Free
But what is free competition? Evidently it is not what goes on in the markets. Competition encounters innumerable restrictions upon its freedom, some of which it contrives to overcome at times, some of which it never can overcome. And as long as any of these obstacles remain, the actual competition of commerce must have different results from those which would follow from perfect competition.
One of the chief obstacles is the inequitable distribution of knowledge. There cannot be perfect freedom of competition between two men in any field unless they are equally informed concerning the factors that determine profits and losses in that field; and no two competitors can by any chance be equally informed. One is certain to know more than the other about processes, or sources of supply, or stocks on hand, or consumers' purchasing power, or pending legislation or other controlling factors. One is sure to have an advantage over the other in forecasting fluctuations in prices, in money rates, in crops, or in demand. Whatever helps to make information concerning these factors the common property of business men helps to reduce the ranges of profit and loss, because whatever tends toward equality of knowledge among rivals tends toward freedom of competition. Since men are constantly learning part of what they need to know in order to make competition free, the real world is constantly tending to become a world of free competition; but this tendency must ever remain only a tendency, because men never can learn all that they need to know.
There are numerous other restrictions upon free enterprise. Even when men are well informed concerning opportunities, they are not entirely free to change from one business to another, or from one place to another. They encounter such obstacles as language, climate, laws, and lack of funds. They are restrained by family ties, habits, prejudices, and social taboos. Their investments in capital and in education cannot be transferred readily to other enterprises or to other places. No matter how far the price of wheat falls or the price of rubber rises, men cannot help matters by exchanging their ranches in Kansas for plantations in the Congo. Cotton manufacturers cannot quickly become meat packers; teachers cannot quickly become railroad engineers. Since men are thus prevented from promptly leaving less profitable enterprises or localities for more profitable ones, actual competition never eliminates profits and losses.
Because of these obstacles to free competition, society is and must remain an intricate network of combinations in restraint of trade. It is literally true that nobody can engage in any kind of business enterprise without thereby, in some degree, restricting the freedom of others. Indeed, nobody can move from place to place, or withhold information, or partially circulate it, or learn new methods, or quote prices, or market crops, or build a railroad, without making competition easier for some people and more difficult for others. In short, perfect competition is and must remain merely a theoretical abstraction, an academic study; it is never found in the market-place.
In spite of these manifold obstructions to freedom, keen competition is the rule; not one profit-making enterprise out of a hundred is a monopoly. And whenever success in securing a monopoly seems assured, the law is at hand to remove some of the restrictions upon free competition, or, in cases where competition is against public welfare, to regulate profits. A large part of the efforts of the Federal Trade Commission have been directed toward those exceptional cases which failed to show the usual effects of rivalry. The aim has been to restore competitive conditions, even at a loss in efficiency, largely because competition tends to prevent excessive profits while enlarging consumers' freedom of choice. That competition -- always keen though never free -- prevails in actual business must be clear to any one who reads advertisements or walks along a business street with his eyes open. Yet our profit economy is often condemned as a successful conspiracy among business men to kill competition. 'Successful profit-making,' it is said, 'generally involves the destruction of competition and usually manages to nullify all efforts to resuscitate it.' This is as far from the truth as it would be to declare that competition is perfectly free.
All this explains in part why so much confusion attends the discussion of 'free competition.' In everyday speech, this is only a relative term. Every one who uses it has more or less vaguely in mind some status part-way between absolute monopoly, which is exceedingly rare, and absolutely free competition, which is impossible; and no two persons have in mind exactly the same meaning. Seldom do those who speak about free competition have any idea of the multiplicity of restrictions upon freedom which individual business men have no power either to create or remove. No wonder, then, that people are often disturbed to find that competition does not have more effect in reducing prices and profits. No wonder that there are so many condemnations of capitalistic society and so many radical proposals for reform based on the idea that whatever interferes with free competition must be due mainly to fraud.
Many people seem to think that, if Congress could prevent those 'combinations in restraint of trade' with which anti-trust legislation ordinarily deals, competition would be entirely free. Obviously, it never can be free. Even from these few, utterly inadequate comments on the subject, it must be clear that the proposal, frequently advanced in one form or another, to eliminate all profits by eliminating all restrictions upon free competition involves the annihilation, not only of time and space, but of ignorance, of deceit, indeed, of human nature itself.
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