In the mainstream debate both for and against a free market, one notion that seems ubiquitous is that the free market is predicated upon individual choice. Consequently, those in favour of such a market are likely to argue that the more choice there is the greater the competition between firms, leading to increased economic efficiency as those firms seek to meet their customers’ needs for the lowest possible cost. On the other hand, opponents will counter that choice can be wasteful, costly, inefficient and overwhelming, particularly when it concerns supply of provisions as basic as water. They might suggest further that choice is often an illusion conjured up by private companies that basically operate in a profit-maximising cartel.
Wading into this debate as an Austro-libertarian we can see that the basic statements on each side are not entirely incorrect. However they each misunderstand the true nature of choice in a free society.
The kernel of truth in the pro-choice argument is that voluntary behaviour, in the form of choice and action, leads to market outcomes that provide the most benefit to the consumer. However, pro-choice advocates tend to take a very narrow view of choice: that, for every single industry there must, necessarily, be several suppliers from which a consumer can choose, however basic the product and however costly the splintered operations.
In fact, choice is responsible for the entire economic landscape; people choose voluntarily not only which suppliers, in a given industry, they are willing to patronise, but also the extent of choice itself in a particular industry. In some industries – especially those that are growing and innovative – consumers may be willing to support multiple suppliers offering a large range of different, but roughly interchangeable products. We might say that smartphone manufacturing, in which there are quite a few brands available, is representative of this kind of industry. However, in industries which are, perhaps, maturing or otherwise reaching the culmination of their innovative stage, the benefits to be gained from scaling up the production of simple, straightforward products with little distinction might be what consumers desire. This is particularly true where the only differentiation between one firm and another is price, i.e. the only benefit that one company can offer the consumer ahead of another is reduced costs. This kind of industry naturally lends itself to one or only a bare handful of suppliers. For instance, if one, consolidated firm can manufacture a widget for £4 each whereas two, separate and smaller firms can only do so for £5 each, it clearly makes sense for the players in that industry to merge their operations. On the other hand, insisting on the maintenance of a choice of different firms in such an environment would end up being wasteful and unnecessary.
Duncan Whitmore 