Faculty of law blogs / UNIVERSITY OF OXFORD

Whatever the market ailment, competition is typically the cure. Except now. Competition among nations or states for ventilators and masks are causing more, rather than fewer, deaths. The Covid-19 pandemic has prompted competition agencies around the world to acknowledge the need for collaboration at times of crisis.

But what happens after the pandemic? Do we return to competition as the magical elixir?  Think about it.  Whatever illness our society suffers, competition is often the cure. Do we want better education for our children? Create competition among public schools. Better, more cost-effective prisons? Same principle. More efficient health services? Same formula—increase choice and competitive pressure and limit government intervention. 

The competition elixir has two alluring features. First, competition seemingly works well, regardless of the ethical scruples of its market participants. Judges, policymakers and our economic theories often characterize competition as a pursuit where corporate and individual greed benefits society. When unleashed, the rugged pursuit of self-interest will deliver lower prices, more choices, and innovation. Second, competition is cheap to administer: it works far better when the state does less. The government still has a limited role (such as defining property rights, providing a well-functioning judiciary, reducing transaction costs and corruption, etc), but the harm is typically ascribed to too much (rather than too little) government intervention.

No doubt, competition often improves our welfare. Yet, before the Covid-19 outbreak and even before the 2008 financial crisis, many of us were already feeling uneasy about the results of unbridled competition (even if we had not identified it as the cause of our problems). Despite the promise of prosperity, we may have been working harder and longer, but for less money, fewer or nonexistent benefits, and no security. And those low prices we paid may also mean lower quality. Often, we were paying less, but getting much less. Our food has undeclared additives and dishonest labeling; our bargain airlines may be flying with dangerously low fuel loads. The list goes on and leads to an alarming reality—instead of competition serving us, we serve it.

As we currently confront the coronavirus, we see the costs of overdosing. We are, unfortunately, taking part in a large-scale socio-political behavioral experiment, in which our simplified competition ideology is pressure tested.

Take, for example, the toxic competition in the U.S. among the states as they outbid each another to acquire ventilators and protective equipment. As New York’s governor Andrew Cuomo noted, with so many states competing to buy the same commodity, ‘It’s like being on eBay with 50 other states bidding for ventilators. . . it’s the wild West.’ Such auctions may make sense for antiques and art works but not when doctors are left deciding who gets to breathe and who doesn’t. Absent a coordinated federal policy, this free-for-all enriches a few at the expense of many. New York is paying nearly 15 times the normal price for masks as it bids against other stricken states and nations. Here, the federal government should intervene and secure the ventilators and protective gear on behalf of the states and deploy them accordingly.

The crisis also exposes what we termed, ‘cream skimming’, which creates the mirage that whatever the government can do, private markets can do even better. Take, for example, health care in the UK. For years, the government gently pushed to increase competition and alternative services. The private sector appears to deliver better health services at lower costs, which in itself is welcomed, but can be used to justify reducing investments in the UK National Health Service (NHS). Is the NHS really less efficient? Not necessarily. In many areas, it was cream skimming that distorted the image. The private sector takes on the ‘high margin’ profitable services while saddling the state with the unprofitable or costly functions. The NHS, for example, incurs the costs in training doctors, maintaining emergency services, having enough hospital beds for peak months, and caring for the ‘low-profit’ and unprofitable patients. So, in skimming the ‘high-value’ patients and services, the private health sector appears remarkably efficient, partly because they can offshore the costlier unprofitable functions and patients to the NHS (and taxpayers).

At a fundamental level, the coronavirus is testing the assumption that market forces will always yield the right mix and quantity of products at the right price. While often true, market forces do not always deliver. Competition works well in making supply chains efficient, by driving down costs. This looks good during ordinary times, until a major shock to the economy like the current pandemic exposes the system’s fragility. For example, competition, in squeezing out costs, discourages (rather than promotes) hospitals from having enough ventilators and protective masks for a pandemic. Consequently, some forms of inefficiency (or redundancy) are needed, such as more ventilators, more beds, and more doctors. Sometimes the government must require some inefficiencies (like having more regional banks than a few national banks, more supermarkets, bookstores and retailers than relying on Amazon and a few club stores, and more regional seed providers than the Big Four that currently dominate private-sector research on both seeds and herbicides) to safeguard society in case one important player is taken out. The lesson is clear, albeit not always apparent—when our leaders blindly outsource too many of their responsibilities to the competition elixir, they undermine the government’s ability to ensure that markets will actually deliver at times of crisis. No one else is tasked with this responsibility.

But, of course, there is also hope, as the pandemic reveals the triumph of humanity. The pandemic, while unleashing toxic competition, has also unleashed noble competition, one infused with a social purpose other than maximizing shareholder value or personal gain. The race to find a vaccine, for example, has led to unparalleled level of cooperation, in a mutual striving for excellence. Scientists at the University of Pittsburgh, after discovering that ‘a ferret exposed to Covid-19 particles had developed a high fever—a potential advance toward animal vaccine testing’, did not opt the usual route for academics—ie publication in a prestigious journal. Rather, they shared their findings with other scientists on a World Health Organization conference call. As Paul Duprex, a virologist leading the university’s vaccine research said, ‘It is pretty cool, right? You cut the crap, for lack of a better word, and you get to be part of a global enterprise.’ We see other altruistic acts around us, where self-interest is not only irrational but self-defeating. To save others (and possibly ourselves) we must look beyond our self-interest.

So this crisis exposes the role of competition in our society and what it can and cannot provide. It is time that our policymakers and courts acknowledge that competition is not inherently and invariably good. It can range from toxic (think of the classic arms race), to zero-sum competition, positive-sum rivalry, and what we term noble competition. Thus, the state has an important role to play in ensuring that we benefit from the right forms of competition. Too quickly, our governments were willing to remove regulatory protections that actually protected us from overdosing. Too often they took the easy path of outsourcing challenges to the free market, and then blaming it when it fails to deliver.

We must recognize that competition, even in its good forms, may lead to an efficient outcome but not necessarily the fair, just, or wise outcome. When our governments elevate competition and capitalism above other values we end up with markets that do not necessarily serve society. As we explore in Competition Overdose, there is another way. A path in which competition is promoted alongside other values. Where governments recognize, as President Franklin D. Roosevelt articulated nearly eighty years ago, the important role they have to play in providing what competition cannot—such as promoting the freedom from want with a basic safety net.

We don’t have to return to the earlier rat race. Instead, we can aspire for a nobler form of competition (and a healthier society) that actually serves us and our children.

Ariel Ezrachi is the Slaughter and May Professor of Competition Law at the University of Oxford.

Maurice E. Stucke is the Douglas A. Blaze Distinguished Professor of Law at the University of Tennessee (Knoxville) and was an Academic Visitor at the University of Oxford.


With the support of