John Madden, Joseph Schumpeter, and Competition
Like many people, I was a fan of John Madden, the NFL coach and game commenter who died last week at age eighty-five. He was a larger-than-life character who made football more understandable to people like me who wanted to watch football on TV but didn’t know what to watch for.
If the only things to comment about were Madden as a person and an expert, and football as a game, it wouldn’t make sense for me, an economist, to write about him. But the history of Madden as commentator, and Fox as his employer, illustrates some important truths about economic competition, truths that many people in the Biden administration either have forgotten or, more likely, never knew. The truths can be summed up in a few pithy statements. First, competition is a tough weed, not a delicate flower. Second, it takes only a few to compete. Third, if you insist on judging the extent of competition by the presence or absence of “perfect competition,” you will miss most of the competition that matters.
This is from David R. Henderson, “John Madden, Joseph Schumpeter, and Competition,” Defining Ideas, January 6, 2022.
Competition between Fox and CBS:
In a December 2018 article, “The Great NFL Heist: How Fox Paid for and Changed Football Forever,” Bryan Curtis illustrates this with his great discussion of the competition for televising NFL games when Fox entered the picture in the early to mid-1990s. CBS was the established broadcaster of the National Football Conference (NFC) football games. Airing NFC games was valuable to whoever won the competition for two reasons. First, NFC teams had dominated previous Super Bowls and so generated more fan interest. Second, NFC teams tended to be in bigger markets: Philadelphia, Chicago, Washington, Dallas, and San Francisco, to name five. Rupert Murdoch, owner of newcomer Fox, saw that also. But an additional factor made the NFC games even more valuable to him. Trying to establish Fox as the fourth network, he and some of his key advisers saw the TV rights for NFC games as a potential cornerstone around which to build the network and expand into a number of major cities. For that reason, Murdoch was willing to bid substantially more for the NFC rights than CBS was willing to bid. Fox won out.
What’s Wrong with Perfect Competition as an Ideal:
When I was an active, rather than emeritus, economics professor and I taught my students about competition, I would start by asking them to name various kinds of competition. They typically came up with a fairly long list. It included advertising, service, location, guarantees and warranties, and additional features of a product or service that would make it more valuable to consumers, to name five. Occasionally a student would mention competition on price.
Then I would tell them that that’s how I think of competition also but that, if they read the chapter we were about to discuss, they would find the textbook author narrowing competition down to one variable: price. Moreover, I pointed out, even that was a little strange because for economists to regard competition as “perfect,” all the competition on price had to already have happened so that each seller was producing the identical product and charging the same price. I first came across the concept of perfect competition from a textbook by Paul Samuelson when, at age nineteen, I was taking my first course in economics. As I wrote in my book The Joy of Freedom: An Economist’s Odyssey, my first reaction was: “This didn’t seem perfect to me at all. It just seemed boring.”
But it’s worse than boring. It leaves out the essence of competition.
Read the whole thing.