Commercial in Confidence

Confidentiality, secrecy and concealment are part of the everyday process of commerce. Deals are concealed from the competition in order to boost profitability. If the competition knows how much you pay your suppliers, or charge your customers, they will be able to outbid you for scarce resources and undercut you when chasing contracts. According to this analysis, business is like a game of poker; you do not reveal what you do not have to reveal.

Although some sectors of the economy may operate this way, practical experience would tend to suggest that the process of doing business is more complex and subject to many more variables than merely price. Poker-style negotiation is, in real business situations, very often the least productive strategy.

Nevertheless, open book accounting will have an impact on profits if it makes business more competitive. The inconvenient truth for capitalists who publicly champion competition is that it drives down profits. The most profitable businesses operate in markets where they are dominant enough to be able to influence prices, whether for inputs or outputs. Politically, capitalism favours competition, but commercially the pressure is generally to avoid it.

In conventional economic theory, perfect competition depends on perfect information. The more information the market has, the nearer the competition in the market can approach the theoretical state of perfect competition, and the nearer the overall rate of return in the market approaches the prevailing cost of capital. While this is not necessarily good for individual businesses, who can make higher profits when they have information that is not shared with the rest of the market, it is good for consumers and it is the state towards which regulation should aim. However, in general businesses are unlikely voluntarily to forgo the additional profitability that comes from imperfect information in the market, and on the face of it, no commercial corporation would willingly open its books to the scrutiny of its competitors without reciprocal transparency being enforced. But – as we are so often told – more competition is good for the economy and for us as consumers, so commercial transparency may eventually need to be enforced by regulation.


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