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Monday, June 13, 2005

Competition Hurts and Sometimes Kills But Should Not Be Outlawed

I am far from a gearhead and I employ people to change my cars' oil. But cars are in the economic news.

In a positive take on GM's woes, Gregg Easterbrook, in the NYT discussed that Scumpeter's "creative destruction" means better and cheaper cars to the consumer even though the car-making behemoth is suffering. And not reported by the MSM very loudly, Easterbrook advises:

For instance, the same week that G.M.'s cut made the front pages, DaimlerChrysler announced it would invest $40 billion in North American operations over the next five years, including building a new assembly plant in Illinois and expanding factories in Ohio and Michigan.

In other words, there are competitors who can take advantage of the problems of another competitor. Historically, we have seen large businesses go bankrupt, get gobbled up or become smaller versions of their once great selves (Sears). But we consumers have done well all along.

Says Easterbrook:

Competitors often concentrate their fire on the industry leader because its sales represent the richest target. And in the auto business, the old General Motors was an enchilada with extra cheese.

And remember that the big companies sometimes make big mistakes in marketing, employment practices and other key areas.

Again from Easterbrook:

Many factors contributed to the General Motors decline - health care costs, corporate bureaucracy and detachment from the market. (Toyota, Honda and others have long focused their marketing research on California, to be close to the pulse of car culture. G.M. does its big thinking in Michigan, which is a little like studying fashion in Toledo.) Company executives bet heavily that gas prices and poor fuel economy would not dampen enthusiasm for G.M.'s S.U.V.'s and pickup trucks; now, that is happening.

Apologies to all Toledoans, and I once dated a girl from outside of Toledo and she was very nice, all of this means progress. And when we get better things for fewer peices of paper in our wallets, we are richer. Long live competition!

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