"Competition" Does Not Mean "Zero-Sum" Competition

There is a common misconception that "competition" invariably means "zero-sum" competition. Win-Lose. This is epitomized within the article America’s Competition Fetish Produces Human Sheep. In it the person being interviewed makes many good points, but also some common logical errors. The interviewee’s argument is that from birth we are all competing with one another for stuff. We are told and shown that winning is everything, and losing is unacceptable, and the consequence of this education is the creation of un-creative sheeple. This is all, quite obviously, true. In an interview with PandoDaily from four years ago, Venture Capitalist (and founder of PayPal) Peter Thiel, made many of these same arguments.

What frequently follows this type of argument, however, is a condemnation of the concept of competition in economics (as seems to be the case in this article). “If,” the argument goes, “competition is bad, then all of these economists who say competition is good are wrong.” In the article it is stated thusly:

…classic economy theory [sic] tells you that a competitive marketplace is superior because competition provides a diversity of products which is good for the consumer, and it also, therefore diversifies risk. And yet, in this instance, competition has led every single one of these companies to copy each other…

Newsflash: Words Have Multiple Meanings

The interviewee ignores that within this paragraph the word “competition” is being used in two very different ways. In the first sentence it is being used as a synonym for “choice.” Choice is good for the consumer. If consumers don’t have choices, vendors have no pressure to deliver quality products at low prices. Competition on the individual level is not about choice, it’s about winning or losing. In other words it is zero-sum.

This is what zero-sum competition looks like

Competition in economics is not necessarily zero-sum, and the point Thiel makes is that if you want to start or maintain a successful company you shouldn’t pursue zero-sum competition, a position he advocates on the personal level as well (as would I). In other words, you want to avoid direct competition, or competition simply for competition’s sake, whether on the enterprise or individual level. The type of competition being discussed in the second sentence of the quote is direct/zero-sum competition. The companies (banks) were offering largely the same exact product (heavily regulated loans), therefore the only way to increase their loan portfolio was to take bigger risks by granting loans to people who might not be able to pay them.

Apple v. Google

On the other hand, Apple and Google compete (for example, in the smartphone business), yet both are highly profitable. In addition, their competition results in lower prices for the consumer. That’s win-win-win, not win-lose. Imagine if Apple didn’t have to worry about you purchasing an Android smartphone (for example, if Android didn’t exist), how much more do you think they would be able to charge for the iPhone? The only hope you would have for avoiding price-gouging would be if there was yet another competitor in Android’s place. In addition, the knowledge that there are competitors out there just waiting to snatch up their customers encourages them to keep striving to make ever improved products. As Nokia and then Blackberry demonstrated, market dominance can be a very dangerous thing.

Obviously competition in business can be zero-sum. Apple and Google’s success has meant the failure of companies like Nokia and Blackberry. But it’s hard to see how even zero-sum competition in this context is bad. Nokia/Blackberry’s phones weren’t nearly as good as either Apple’s or those using Google’s operating system (Android) largely because they failed to figure out how to attract application developers to their platform (not to mention poor hardware and software design). They should have been punished by the marketplace. How do you argue that competition is bad in this case? And what possible direction can that give you? "Competition is bad, therefore the fact that Nokia/Blackberry was out-competed is bad, therefore Apple and Google should not have been able to compete with them?" Obvious nonsense.

The reason Apple and Google can coexist in a market is because they have figured out how to compete in non-zero-sum ways. Apple uses its tight control over a closed ecosystem to make free/closed software (iOS) and hardware (the iPhone, iPad, iWatch, etc.) which it can sell for a profit. Google provides free/open software to hardware manufacturers (e.g. HTC, Samsung, Motorola) and uses the tight integration of its software tools (mainly search) to generate a profit. Nokia/Blackberry, on the other hand, pursued the same strategy as Apple. They made the hardware (the phones) and free/closed software (Symbian and Blackberry OS). Failing to beat Apple head-to-head meant that the companies failed too.

App developers flocked to Apple because they were first to market and they executed the hardware and the software well. Google recognized that it couldn’t compete directly with Apple because developers would never invest the resources to develop apps for a platform with a small market share. In order to attract developers to your platform you would have to figure out how to get your OS into a critical mass of phones (ideally equal to or greater than the number of iPhones). Investing in both hardware and software would have limited how many resources Google could put into either, thereby limiting their potential to disrupt the status quo.

How Google Avoided Zero-Sum Competition With Apple

Google’s solution was to largely abandon hardware altogether and to make their OS free and open. This solved two huge problems for manufacturers: 1. it allowed them to save the money they would have spent developing the software necessary to run these devices (software which would have to compete with Apple, and eventually Android too), and; 2. it allowed them to attract developers who could rest assured that their app would work on any phone running Android, not just those made by a single manufacturer. Finally they didn't have to fear competing with a behemoth (Google) in the hardware segment.

The Curious Case of Samsung

Samsung is an excellent proof-point. Only once it abandoned developing its own software and switched to Android for the Galaxy S line did its meteoric rise within the smartphone race begin. Somewhat ironically, the massive profits that resulted from that strategy provided the company with the resources to once again pursue alternate operating systems of its own (like Tizen), though time will tell whether this winds up being a winning strategy. In my opinion, however, Samsung’s success was temporary (as evidenced by the fact that their smartphone sales peaked in 2014) precisely because they compete too directly with Apple. Both their design and software features are still, in general, blatant Apple rip offs.

For a company with massive resources and engineering talent this should be deeply troubling. Since they have failed to demonstrate a consistent aptitude for hardware design and obviously lack sufficient software differentiation (the downside of using an open platform) they would be better served by focusing on remedying their hardware design deficiencies as well as developing unique features that run on Android (e.g. I have yet to see a viable AirDrop competitor on Android). I believe this would be a more productive use of resources than attempting to compete directly with Apple and Google with an OS.

GOOD Competition v. BAD Competition

The point being that there are different types of competition, some are good, some are bad. The competition (a/k/a choice) between Apple, Google, and Nokia is good because it insures that companies involved in making good phones are rewarded and the prices of their products are kept low. How those companies deal with competition on an individual level within their enterprises may very well have been (and probably was) part of the equation for their success. Perhaps Nokia fostered a zero-sum competition environment within the company. If the employees believed that in order for them to win one of their co-workers had to lose, and that in order for the company to win, one of their competitors would have to lose, this would guide all of their decision-making in a particular direction.

Instead of looking for creative ways of delighting their customers, they would instead focus on how they can sabotage their co-workers or their competitors. That this would lead to the company producing an inferior product should surprise no one. Whether this is what happened or not is unknown, however, what we can say for sure is that they did not foster the type of competition that led to the creation of successful products, and consumers (a/k/a the market) punished them for it. Apple, on the other hand, has a history of intentionally ignoring what other companies are doing (e.g. eschewing physical keyboards and opting for touchscreens) and focusing instead on delighting their customers. Meanwhile, within the company some competition between employees and teams was encouraged, which drove them to create hardware and software that consumers deemed valuable.

What TYPE of Competition Matters

The type and extent of competition that is fostered within a company is clearly important and nuanced. Feeling no pressure to create something which has value for the company is as dangerous as feeling all-consuming existential fear of failure. To assume that just because one word (“competition”) can be used in all of these circumstances, the same conclusion can be drawn for each instance (“competition is bad”) is frankly sophomoric and ignores the obvious reality that words can be used in very different ways. I certainly agree with the interviewee’s premise that promoting and obsessing over individual/zero-sum competition is an endemic (and epidemic) problem within our culture and the intentional teaching of such an approach should be immediately halted, however, unlike the author I think it is clear that competition between firms is certainly not the same thing, and in actuality serves as a check on individual competition because (as the interviewee herself admits) individual/zero-sum competition can be quite bad for firms.

Competition on Steemit

One of the many strengths of Steemit is that it is designed to foster non-zero-sum competition. Obviously there are many people who believe that in order for them to "win" on Steemit, someone has to lose, but in my own personal experience it is far more profitable to help others than to hurt them. First, the fact that the money isn't coming out of our wallet but is instead pulled from the ever-growing quantity of Steem means that giving to others does not mean taking from ourselves. Second, the curation rewards ... reward us for upvoting other talented individuals. If we follow them, continue to upvote their work, and they continue to grow and develop as an artist, we can all share in that growth. Finally, as effective holders of Steem (technically we only hold IOUs for Steem unless you actually hold Steem directly) what we all benefit from most is ever increasing demand for steem. Being the most rewarded content-creator on Steemit would mean nothing if the value of Steem was zero.

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