If one toothpaste company decided to go with only one type of toothpaste, it would surely suffer a loss of shelf space and a corresponding loss of sales. So every toothpaste company is forced to compete in the marketing game, to the overall detriment of the consumer who is faced with too many choices and higher prices for toothpaste. (Prices are higher because marketing costs are passed on to the consumer.)
It made perfect sense to me when I wrote it, but Robert Bell noticed my post and wrote:
Well, no, competition does not cause higher consumer prices, unless elementary economic principles have completely changed recently.
What I wrote truly is a complete reversal of what everyone thinks they know about economics! But I think we need to examine whether competition is always guaranteed to lower prices.
When people think of competition, they usually think of a market where there are an infinite number of sellers selling fungible goods. In such a market, the price of each good will be equal to its cost of production plus the opportunity costs of the sellers (who could otherwise be making and selling something else).
In our marketing based economy, we usually have oligopolies selling goods which the sellers have tried very hard to present as non-fungible. Depending on the price elasticity of demand for the items in question, firms may find it more beneficial to compete on the non-price components of marketing. These marketing expenses are then passed on to consumers.
To use the toothpaste example, this might mean that it’s easier to sell a $2.50 tube of toothpaste than it is to sell a $1.25 tube of toothpaste. Imagine you were able to manufacture toothpaste and well it at a wholesale price point such that it could sell for $1.25 retail, half the price of other brands. Do you think you would sell any? Would the supermarkets be jumping at the opportunity to sell your budget toothpaste? Most likely not. You would have to spend huge amounts of money on marketing in order to convince consumers to buy it and supermarkets to stock it, and the end result would be that your marketing costs were so high that you now have to sell it for the same price as all the other toothpastes.
(Half price for toothpaste is probably quite doable considering the ingredients in toothpaste are dirt cheap. In fact, one of the major ingredients, “hydrated silica,” is quite literally dirt.)