Two powerful competitors frequently end up locked in a stable, mutually beneficial dance of tit-for-tat—they collude, in short, to carve up a captive market.
It's always nice to see an article that explains some basic concepts of industrial organization (IO). And though this one is set in the context of our political duopoly, its political implications are actually far broader.
The very idea that a stable duopoly (or oligopoly, for that matter), operates to the detriment of consumers is revolutionary. It underlines the fundamental problem with labeling particular political stances as "pro business." And if you play it out a bit, it explains why the politicians who truly deserve to be labeled as shills for big business are those--like Henry Waxman or Barney Frank--who emphasize expansive, complicated regulations.
Regulatory structures tend to lock industrial structure in place. It takes time, effort, and money to master a body of regulations. Such an investment eludes most entrants. Startup companies seeking to launch new products, methods, or approaches operate on a relative shoestring; they simply can't afford to divert their scarce resources away from productive activity towards the mastery of regulation.
"Barrier to entry" is an important concept in the world of IO. Every new entrant must clear these barriers in order to enter a new market; once secure in the market, the barrier protects against new competitors. Some barriers are "natural." A manufacturer, for example, must build a new manufacturing plant, thereby incurring a current cost that all existing manufacturers have already sunk. But other barriers are "artificial." They exist only because someone has decided to raise the barriers to new competitive entry. All regulation fall into this category.
Of course, every regulation exists because someone claimed that it would benefit society at large. Sometimes those claims are correct. But even when correct, the societal benefit must be weighed against the costs--and the reduction in innovative competition is one such cost.
In politics, the Democrats and Republicans have constructed a rather complex web of regulations that impede any efforts to generate a third party. Most Americans understand that effect. But far too many voters ignore the extent of this effect.
"Pro Business" all too often means "pro incumbent business," rather than "pro market." Want to see the American economy soar? Focus on techniques that will free our markets.