A more competition-friendly society will be more efficient (extract more wealth from a given level of resource consumption) which will make it wealthier which will allow it to have more inefficient production. For example, my ability to more cheaply purchase furniture from the finest woodworking craftsmen in the world allows me to myself dabble in woodworking at an uncompetitive, amateur level.
There are two sources of this effect:
- My own wealth growing--call this the personal-income effect.
- Society's wealth growing--call this the production effect.
I am generally concerned here with the second of these; although, the first is a derivative of the second thus it is in play as well. There are countless examples throughout culture and industry.
Think about this in capital markets. In the past few decades retail-investor trading costs in stocks have plummeted to now be explicitly zero. (Note: if your broker is still charging you a commission for trades, you might need to explore your options.) This massive reduction in cost has allowed a lot more trading to happen--both more traders especially amateurs and more frequent trading. Did this result in increased price-discovery efficiency? Probably some up until a point. But the next new person trading AAPL (Apple Corporation's stock) probably is not bringing new insight into the market. More likely that person is lowering average accuracy ever so slightly. Otherwise, why weren't they trading before this point There is probably enough liquidity in Apple stock so that is not a benefit of an additional trader's trades either.
Here we are suggesting another aspect of this paradox: without easy market entry/exit, we cannot maintain competitive markets. Yet, the next entrant into a highly competitive market is probably likely to be uncompetitive. Ban additional trading or traders for Apple stock and you will unravel quickly the efficiency we have come to enjoy in this highly-competitive market.
Back to the original paradox, is there more efficiency or less? To resolve the problem we should consider it as a continual process as opposed to being linear and finite. We should also expand our understanding of what ends we are achieving. The socialist's fallacy would be to look at two firms both producing cereal and declare this inefficient. "Obviously we could eliminate the duplication as well as the advertising costs by combining the firms," they would proclaim. But this would break the very process that allows for the desired efficiency (higher and higher production at lower and lower cost).
Imagine how disastrous a true socialists should view a marketplace like Etsy. Here the line between hobbyist and profitable craftsman is magnificently blurred. Magnificent because it is the essence of a culturally and materially rich society where experimentation is both allowed and enabled. A society that embraces competition necessarily invites dynamism. This is a foundational principle and an essential characteristic of growth. It is Schumpeter's creative destruction. It is a gift not a curse.