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Short essay: “Sport is pure competition. What does it teach us about companies, individuals, and markets?”

1 mayo, 2014

In individual and collective sports, the players or teams compete against other to obtain an exclusive goal: a game, a championship, the first place, a record. In free market economies, companies of all sizes aim to maximize their value by competing for clients. The exclusive nature of the goal, in sports and markets, makes rivals interdependent because the destiny of every player depends not only on its own performance but also on how others perform. In that sense, athletes and companies individually prepare to succeed, but their achievements depend on how other competitors behave: they are not alone in the market, the have to adapt intelligently to other player’s strategies.

Furthermore, the players in sports and the companies in the markets have to play under the same set of rules and are monitored by independent authorities or judges. These common rules and the context in which they are enforced determine the players’ and companies’ incentives to make decisions. In addition, to succeed the individuals inside the companies require preparation, clear objectives, perseverance, innovation, strong leadership, collective work capabilities, in order to understand the logic of the game and anticipate rival´s strategies.

However, the analogy between sports competition and industry competition, does not allow us to understand the complete story about individuals, companies and markets. First, tournaments and games always have a start and finish line, they always end up with a winner or a champion. In contrast, the market never stops, there is no finale unless the company goes bankrupt and disappears. The company, its directives and employees may achieve high turnovers in a period, but the “trophy” won the day before has to be validated the next day and so forth. In that sense, companies have the same fate of Sisyphus from Greek mythology, a person that had to climb a mountain every day and when he is almost at the top, he was forced to start all over again. This is why a company that reaches the top of the market through innovative products, production processes, high quality, marketing strategies etc. needs to keep constant efforts to serve the consumers’ needs to ensure sustainable growth.

Second, in principle both in sports and in markets, rivals cannot collaborate with each other. Even more, in business antitrust laws all over the World rule out any practice that unduly restrains competition, such as price fixing agreements. However, antitrust does not prohibit every type of collaboration between competitors. For example, the creation of new technology may require specific joint venture agreements between market competitors. This kind of interaction between rivals is absolutely ruled out in sports.

Finally, while sports have a single objective, to win and prevail over others, companies may have other objectives that are not exclusive and that may incentive collaboration with other companies. This is the case of social entrepreneurship, where the value created through impact in a society is considered as important as shareholder value.

[Note: I wrote this short essay, of less than 500 words, to submit an application to Oxford’s MBA programme and I guess it is worth to publish it instead of keeping in my Mac computer.]

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2 comentarios leave one →
  1. Daniel Gómez Gaviria permalink
    2 mayo, 2014 12:16 PM

    Nice essay. Contrary to what we tend to emphasize, I think that the main feature of markets is not competition but rather collaboration. Markets, the price system, is mainly about people who know nothing about each other, who live in different places, speak different languages, have different believes and values (and may even hate each other if they ever met in person), interacting through the market. They all respond to price signals in the pursuit of profit. They coordinate and exchange with no explicit coordinator and do so peacefully and in the absence of force.

    It is unfortunate that we grow up with the paradigm of sports and zero-sum games and that mind set permeates all our understanding of economics. Economics is more about positive sum games rather than zero-sum games like in sports. The market system is really about mutually beneficial and voluntary exchanges where everyone is a winner. It may be unpopular on a blog about competition to say this, but maybe we should refocus towards emphasizing collaboration as the main feature of the markets we study.

  2. Guillermo Castro permalink
    2 mayo, 2014 4:54 PM

    Excelente.

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