You omit a few things. Not all workers comp goes up the same. There are “frictions” to entrance into a market or industry, such as availability of capital, availability of labor, industry-specific knowledge, legal restraints such as non-compete agreements. Gas prices jump up and drift down. No one wants to be first. Most businesses don’t face a store on every corner. Sometimes a billion dollars or more is required to begin an enterprise, and what if the market conditions change in the meantime?
Competition by price is for fools and losers. Perhaps we learned this in a higher level course, or by the hardest experience.
You’re right. The free market is messy and sloppy. But as a pricing mechanism it works, most of the time pretty well and all of the time to some extent, unlike any alternative that has ever been implemented or even proposed.
Only an idiot who has never operated a business would claim that price competition doesn’t exist and isn’t a key factor, often the key factor, in how a business prices its goods or services.
For that matter, there is downward pressure on prices even in the absence of a competitor who will do the job cheaper. In my own business, I can often get another project by reducing my price slightly. Let’s see, would I rather have $900 or not have $1000? If my costs have gone down recently, am I not more likely to go for the $900?