Competition Drives Costs UP

by Don Harkey

Every American knows that nothing drives down costs like competition. The more players in a particular market, the lower the costs will be for the consumer because of the different players will need to drive down costs to compete with the other players in the market. Pretty simple, right? Wrong.

Competition does not always drive costs down for the consumer. Think about an airport that utilizes 4 different airlines. Let's say that each airline operates its own ticket counter, manages its own security check in, its own crews, its own airplane maintenance crew and even its own arrival/departure boards.

First of all, as a consumer, you will see a quality issue in terms of service. If your United flight is canceled, it is unlikely that they will put you on the Northwest flight leaving in a half hour. Imagine running 4 different security lines (all unbalanced because you have to go to the security gate of YOUR airline. Imagine the confusion on switching flights. You have to find your departure board and only people from your airline can help you. What about the costs? The operational costs of these 4 airlines are sky high (pun intended). Instead of one maintenance crew capable of handling the entire airport, they must maintain 4 crews. This means more parts inventory, more people, and sacrificed efficiency.

The point here is competition does not always drive costs down. In fact, the opposite is frequently true. Most of today's most successful companies are constantly looking to their competition for opportunities to collaborate and share resources. As long as price fixing doesn't occur, the value of these collaborations are passed to the customers.

This is also true for people. Competition can inspire people to do great things, but in the end, it is team work that truly makes people more effective and more efficient. Inspiriting competition within your organization in a way that discourages collaboration will lead to increased costs, decreased morale, and inefficiency!