When the customer receives defective, shoddy, or inferior-quality products and above market price—from the only game in town—the customer lacks an easy escape from incompetent or unscrupulous sellers. It behooves the customer to seek other viable options in the market from firms that offer similar products. But if there are no competitors at all, who and what improves choice and consumer protection?1
What we know doesn't protect consumers are high barriers to entering the marketplace. These are barriers that are set up to the extent of not allowing newcomers to risk their capital in order to better serve the customer. These barriers often take the form of government regulations. But regulations generally restrict competition rather than enhance it. Although government bureaucrats may have good intentions when putting regulations in place, regulations don't actually protect consumers. More regulation means fewer sellers, fewer customer choices, and fewer consumer protections. More market competition, on the other hand, provides more customer protections. Competition allows firms to develop better ways to serve people and protects customers by providing more choices.
Although consumers should be able to shop around for substitutable goods and services, oftentimes they can’t. For example, the taxi industry—heavily regulated by harsh and inflexible rules—has been disrupted by technology-driven transportation services such as Uber. Professor Walter Williams highlighted the lack of competition in the taxi industry back in the early 1980s. Now we see the result of newcomers entering this industry. They protect customer wants and needs and have broadened their customer base many times over. More importantly, they have given customers a choice, and thereby protection.
Competition, for the sake of consumer protection, hinges on the premise of the market as a process. As Sowell stated in Wealth, Poverty, and Politics, “Wrong premises seldom lead to correct conclusions.” A wrong premise is erecting more barriers to industry and market entry. What protects the consumer from a single provider selling faulty products and providing bad service? The answer boils down to the number of choices available to the consumer. Producers and providers have to respond to particular prices, quality, and service matters that represent customer "votes"—how much business they get. Votes signal to the producer-entrepreneur that they are serving clients well, which encourages the producer to provide the utmost quality.
From the consumer's point of view, facts about the market are only observed and discovered through competition. It is true that in a competitive and free market, entrepreneurs learn from the price system which services and products are preferred. They might also learn other facts about a market: the number of competitors, the market price, the cost of labor, etc. The consumer employs a similar process. Competition allows them to collect information as well.
- 1See Henry Hazlitt, Man vs. the Welfare State.
