Competitiveness is seen as a fundamental aspect of market theory and this competitiveness can only occur when there are numerous competitors, all with small market shares, competing to innovate and better their rivals. This competition forces firms to work at maximum efficiency and create a superior product to their rivals at a lower price in order to appeal to more customers. This benefits the consumer as they are offered more choice when it comes to a product which best suits their needs as well as receiving a better product at a lower price. When companies engage in what is known as “anti-competitive behaviour” they are often sanctioned by the government who wishes to protect the consumer from malicious business practices which will hurt their pockets. This same logic can be applied to party politics under a democratic electoral system.
In modern politics, the percentage share of voters amassed by individual political parties in elections is often very concentrated, with in many cases two or three parties dominating the polls for years on end. Having a highly concentrated “Political Market” can heavily impact the stability of democracy within a nation as it decreases the competitiveness of elections. Competitiveness in an election is a vital aspect of a democracy as it allows a more diverse array of opinions to be represented within government institutions. The more concentrated the political market is, the less competitive/diverse the representation will be. Much like with the firms, competitiveness also ensures that political parties are held to a higher standard by the public as they have many alternative options when it comes to which party should run the country for the coming term.
While the usual measure of the competitiveness of elections is the 'margin of victory' method, as these two types of markets are so easily comparable, we can also use the same measurements in order to test their competitiveness. The simple measurement which economists use in order to analyse how competitive or uncompetitive a market is known as the Herfindahl-Hirschman Index (HHI). In order to calculate the HHI we must square the percentage share each firm, or political party, has in the market and then add each of these numbers. According to these results we can then assign the market into three different categories: a competitive marketplace (HHI of less than 1,500), a moderately concentrated marketplace (HHI of 1,500-2,500) and a highly concentrated marketplace (HHI of more than 2,500). The HHI is an effective scientific tool to measure if a market is dominated by a few firms, or parties, or populated by many.
For example, based on last year's general election in Denmark we can see that competitiveness in the Danish political landscape, which has around 13 active political parties represented in their parliament, has a HHI of 1319.86 which would be deemed by Herfindahl and Hirschman as a competitive market. When we compare that to the HHI of two party states such as the US however, we can see that they have a HHI of 4833, meaning that the American political market is highly concentrated, the same category that an oligopolistic market would be placed under.
So what does this mean for the people of Denmark versus the people of America? Well as mentioned above, in America there will be a less diverse variety of views represented within the political system and, as a result, creates ideological boundaries around which political discussion operates. This would be as opposed to Denmark where a much broader ideological conversation and debate can be had by various groups. This difference in competitiveness also means a reduction in standards by which these parties must abide by in order to stay in power as the voters have more options.
Competitiveness however, is not the only factor of a fair and equal democratic electoral system of course, there are many other factors such as voter suppression or even imbalance access to the media. If, for example, there are less polling stations set up in certain areas than others or one party controls the state media and exclusively campaigns for their party, even if there was a competitive election with a large number of parties each claiming some political market share, this would still be classified as an undemocratic election. Democracy also comes in various forms with some countries operating under a proportional representation system and others opting for majoritarian representation or many other systems. This will also impact the outcome of the elections, however based on polling results regardless of what system it is we can still get a solid gist of the competitiveness of elections based on this simple HHI formula.
13 March, 2023