The Conflict Between Belief In Free Markets And What Really Happens In Business

This article should be read in every business school. It describes the conflict between our belief in free markets, and the belief that the primary goal of the corporation is to increase shareholder value. The best way to increase profits and shareholder value is to have imperfect markets without price competition. Oligopoly is the primary form of imperfect competition in most industries. Sometimes the barriers to competition erode, or new products emerge to create competition, and competition is restored. However, businesses usually spend large sums on lobbying government to maintain barriers to competition. Most corporate executives will tell you that they believe in the market economy but their business strategies are based upon limiting competition which is at the heart of free market ideology.

I used to host meetings in which investors interviewed entrepreneurs who requested financial support in return for a share of the equity. The conversations always included discussions of barriers to entry. The investors were only interested in financing new ventures that had patent protection, or other barriers that would support high margins. Of course, every business strategy course is also about the use of methods that reduce the impact of competition. The goals of most businesses are in conflict with the ideology of perfectly competitive markets.