Regulation through Competition

by Don Boudreaux on May 8, 2013

in Competition, Complexity & Emergence, Regulation, Seen and Unseen

Free markets are extraordinarily – tightly – ceaselessly – impressively regulated.  And nearly all of this regulation is spontaneous; it’s the result of the competitive market order.  Unlike that species of regulation called “government regulation,” the kind of regulation that remains dominant in markets is not designed by government officials; it doesn’t amplify collective manias; it doesn’t treat consumers, workers, or business people as morons; and it’s not able to be captured and corrupted by special-interest groups.  Nor is it one-size-fits all regulation.  Call this regulation “competitive regulation.”  It works so well and so smoothly that most people don’t even notice it, much less recognize it to be regulation-in-action.

Competitive regulation is the subject of my most-recent column in the Pittsburgh Tribune-Review.  Here’s a slice:

Want evidence [of the reality and effectiveness of competitive regulation]? Go to the supermarket and then to the mall. You’ll find astonishingly wide offerings of high-quality and affordable goods: food and drink products, detergents, kitchenware, clothing, furniture, consumer electronics and on and on and on. You’ll also find stores manned by clerks and managers who generally would be distraught to lose their jobs.

Nearly none of what you see is the result of government regulation. No regulator ordered Safeway into business. And no regulator tells it what to offer for sale. If Safeway wished, it could — as far as the government is concerned — stock only cans of corn and nothing else. It could refuse to pay any of its workers wages higher than the legislated minimum. It could open for only 15 minutes daily. It could use pencils and paper, rather than electronic scanners or cash registers, to tally its customers’ grocery bills.

But it does none of these things. Competing with Kroger, Wal-Mart and other supermarkets, Safeway voluntarily chooses — for its shareholders’ own good — to spend tens of millions of dollars annually to keep its shelves stocked with a vast assortment of items, to pay most of its employees wages well above the legislated minimum, and to undertake all the other countless activities that it must undertake to turn a profit.

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