I. INFORMATION AND COMPETITION

Economics teaches that information has an important role in promoting competition.  Without information, competition is not effective.

Added information is always beneficial.  It is never harmful.  It will always increase competition. 

Consumer Rankings has one rather simple goal: to increase information through head-to-head product comparisons.  Consumers, companies and society are expected to benefit as follows:

(i) Consumers often lack the time and expertise needed to find the best value-for-money products. The rankings make this information available in an easy-to-understand format.

(ii) Companies react to consumers' more complete information by competing more vigorously. Competition may be intense and even "cut-throat".  In the short-run, this is harmful to a company's profitability. In the long-run, however, surviving firms are more efficient and often more profitable.  (See the SingTel example, below.)

(iii) Society benefits through a more efficient allocation of resources.  Capital and labour flow to competitive firms -- and away from uncompetitive firms, which often go out of business.

Competition also makes business more dynamic and creative as companies look for inventive ways to out-do their competitors.

The easiest way to see the benefits to society is to compare economies with and without competition.

Without competition (i) too much capital and labour is employed in some industries and not enough in others, (ii) employees do not produce their maximum output and (iii) incentives are lacking to upgrade from old to new technologies. 

The economic term for efficiency losses is "dead-weight loss".  It is even possible to measure its cost to the economy.

Examples of societies suffering under the burden of dead-weight loss are China prior to Deng Xiao Peng, the Soviet Union prior to its breakup and a number of developing economies today.

An exception to the rule are nations rich in natural resources. Oil wealth has allowed these countries to enjoy high living standards without competition and its benefits.  

Despite their wealth, an increasing number of oil-rich countries have nevertheless chosen to encourage competition.  Dubai in the United Arab Emirates is a prominent example and there are many more. 

II.  BENEFITS FROM PRODUCT COMPARISONS: 3 EXAMPLES

1) LIFE INSURANCE companies are discouraged from head-to-head competition.  The industry group, the Life Insurance Association, has discouraged such comparisons in the advertisements of its member insurance companies. Consequently, few consumers know which company offers the best life insurance products. 

As an example, if consumers discover that ABC Insurance Co. offers the lowest term insurance rates AND its insurance is renewable to age 80, while others renew only to age 60 -- then consumers will favour ABC Insurance Co. when purchasing term insurance.

To survive, competitor insurance companies will respond by lowering their rates and/or extend their coverage from age 60 to age 65, 70, 80 or even more.

While the short-run economic impact is negative for companies, there are long-run benefits from competition. Why? Because competition makes them lean, hungry and efficient.  

Competitive firms are more productive.  They use fewer resources per unit of output than non-competitive firms.

2) SINGTEL, Like most companies, would probably prefer less competition, which would allow it to charge higher prices. 

Ironically, however, its efficiency has made it able to generate higher profits now than before competition was introduced in 2000.

It has used its profits to expand throughout the Region.  It has also used its expertise as an effective competitor to increase the profitability and productivity of companies in which it has invested.

In contrast, state-run monopolies in other countries would seem to have an easy life. They are allowed to set monopoly prices, sometimes as high as $3 per minute for a one minute call to the US.  In contrast, competition forces Singtel to keep its costs low. It charges just $0.16 per minute for calls to the US.  

The biggest surprise, however, is that despite its low prices, SingTel's profits exceed $2 billion per year while the telecom monopolies in other countries -- many of which are heavily subsidized -- do not make large profits, and some barely break even.

Competition has made SingTel lean and mean.  State-supported monopoly phone companies are often over-staffed, lag in technology and have little incentive to make their operation more efficient. 

There is not a single state-supported telecom monopoly which has even attempted overseas expansion.  All are content to run a safe business at home and appear intimidated when it comes to taking over another phone company and making it more efficient.

3)  FOREIGN UNIVERSITIES in Singapore come in a wide range of quality.  But it is difficult to determine the quality of all the Universities offering courses here.

When students have accurate information about the quality of Universities, it will influence their enrollment decisions. 

In turn, this will force local agents -- which represent foreign Universities in Singapore -- to compete on the basis of quality.

The local agents who survive and prosper will be those which are most successful at bringing top-ranked Universities into Singapore.

The current situation is one where students rely on local agents for information about the quality of degree programmes. Of course, these agents have an incentive to over-state the quality of the University they represent. 

III. INVISIBLE BENEFITS

Competition results in direct benefits to consumers in the form of lower prices and higher quality products.

Other benefits are less visible but no less important. These include a more efficient allocation of capital and labour resources plus a more vibrant business environment.

These benefits are substantial and observable only in the long-run.

The easiest empirical proof of these benefits comes by comparing economies with and without a competitive business environment.