Competition Overdose: How Free Market Mythology Transformed Us from Citizen Kings to Market Servants.

• Author: Hemphill, Thomas A.

Competition Overdose: How Free Market Mythology Transformed Us from Citizen Kings to Market Servants

Maurice E. Stucke and Ariel Ezrachi

New York: HarperCollins, 2020, 421 pp.

Is competition always the answer to underperforming markets? Maurice E. Stucke, a professor at the University of Tennessee College of Law, and Ariel Ezrachi, the Slaughter and May Professor of Competition Law at the University of Oxford, unequivocally answer "no." Introducing competition often unleashes free-market forces to increase consumer options, lower prices, and improve the quality of products and services. However, the authors emphasize a dark side of competition where certain private-market solutions can increase economic inequality, stifle entrepreneurship and innovation, injure consumers both physically and financially, and destroy competitive industry ecosystems.

In Part I ("When Is Competition Toxic?"), Stucke and Ezrachi offer examples of "overdoses" of economic competition and how they are misused, while explaining why they continue to proliferate. For instance, the authors explain how competition harms both university competitors and their intended student and parent beneficiaries. In the case of highly selective/elite universities, such as Harvard, Stanford, and others, competition for students is partially dependent on national rankings found in the annual university and college ranking (based on 15 key measures) of the U.S. News and World Report. Such rankings can create a positive feedback loop (i.e., a rise in the annual ranking attracts more "star" students) or a negative feedback loop (i.e., a decline in the annual ranking attracts fewer "star" students).

One metric is the acceptance rate: the lower a university's acceptance rate, the more selective it is and the better it performs in the rankings. This "toxic competition" has many universities expending financial resources on the competition itself rather than on improving their educational product or service. But universities can neither deescalate this academic "arms race" (as they fear the consequences of unilaterally opting out and similar competitors filling the gap and increasing their applicant pools), nor can the students (and parents) who are looking for the best "route" to upward social mobility--a prestigious education that will help ensure their future economic survival. Is the latter behavior rational thinking on the part of students and parents? Perhaps, but the authors indicate that many non-Ivy League graduates compare well in median earnings to Ivy and elite schools, as well in the value the institution delivers in improving students' skills.

Another cited example of a competition overdose is "choice overload." Many policymakers, economists, and businesspeople believe that the greater the volume of consumer choices, the better. But how much choice do consumers want, and how much should businesses provide? Research studies (including a much-cited 2000 study by Sheena Iyengar and Mark Lepper) show that when consumers have too many product or service choices, they become overwhelmed with "cognitive costs," becoming inhibited about making choices. In fact, from the business perspective of generating revenue, this situation can result in the worst-case scenario--consumers not purchasing any product. Yet, the authors concede that other research studies have not shown evidence of choice overload or have revealed mixed empirical results.

Why does choice overload...