Competition? Oh, the horror!

Competition? Oh, the horror!

By Dr. Jonathan Tiemann

I’ve written on this theme before, but it bears repeating. As often as we hear politicians, venture capitalists, bankers, corporate managers, and even economists extol the virtues of free market competition, business leaders know better: Competition is bad for business. And every once in a while, one of the designated cheerleaders of American capitalism suffers a lapse and admits it.

Wednesday morning on CNBC, Jim Cramer was discussing the poor recent market performance of stocks in the transport sector, and the airlines in particular. Here’s what he had to say [1]:

“Sometimes though, this kind of action is a sign not of weakening trade, but of potentially ruinous, cutthroat competition. And that’s what is driving the group down at this very moment,” Cramer said. Cramer considers competition to be the absolute worst thing that could linger in the market. On Tuesday, the “Mad Money” host spoke with Doug Parker the CEO of American Airlines. Parker confirmed that his competitors in the industry have decided to take advantage of the strong travel market right now by ramping up capacity.

Mr. Cramer’s remark was an unusually frank admission that in their hearts, many business people view competition as destructive. In the case of airlines, what if an increase in capacity results in lower fares, better service, and perhaps more comfort? That would add up to a transfer of value, whether in dollars or not, from the owners of the airlines to the public at large. That would be terrible, wouldn’t it?

[1] Abigail Stevenson, “Cramer Remix: Absolute worst thing in the market,” May 20, 2015, CNBC online at http://www.cnbc.com/id/102696359

By | 2018-12-20T20:34:49+00:00 May 20th, 2015|Business News, TIA|0 Comments

About the Author:

Jonathan Tiemann
Dr. Jonathan Tiemann, TIA’s founder, president and chief investment “guru,” has 30 years of investment experience, which include nearly a decade in academia and now more than twenty years managing money and designing investment services. He earned his B.S. in Applied Mathematics from Yale University, an M.S. in Operations Research from Stanford University, and his Ph.D. in Finance from Yale University. Dr. Tiemann taught Finance at Harvard Business School for five years before leaving academia for Barclays Global Investors (formerly Wells Fargo Nikko Investment Advisors and currently Blackrock), where he became Chief Investment Strategist, responsible for nearly $200 billion in institutional assets.

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