Capitalism doesn't discourage dirty tricks.
Maybe you're smarter when it comes to business than, say, Warren Buffett. His theory is that having a good reputation is immensely important in business.
Businesses suffer or die all the time in the free market due to poor reputations. You see those consequences at a small town level, and you see it at a very large level.
To easily test your theory: try setting up a business in a small town. Proceed to cheat or otherwise perform dirty tricks on all of your customers. See what happens.
The concept of a free market does not require perfectly equal distribution of knowledge or capital, such that in the absence of that said free market ceases.
"Free market" != perfectly equal distribution of resources.
Second, your premise is invalid because it rests on the notion that both capital and information are static quantities, when in fact they can be created and accumulated by new entrants very easily, and historically this is exactly what occurs.
If you were right, the silo would act to vigorously prevent new entrants. The exact opposite proved to be true under Capitalism in the US: the US became the greatest business / startup creation engine in history precisely due to its original highly free market orientation.
http://www.merriam-webster.com/dictionary/free%20market
"an economic market or system in which prices are based on competition among private businesses and not controlled by a government"
http://www.investopedia.com/terms/f/freemarket.asp
"A market economy based on supply and demand with little or no government control."
I don't think these definitions are that rigorous or well-founded, however I will accept that they represent a colloquial understanding of the terms however "incorrect" they may be. I say "incorrect" because I'm not sure you could use those definitions to point to real-life instances of what my understanding (and what I believe is implied in this thread/forum) of a "free market" is:
Entities exchanging *things*, free of coercion.
Ok, so you've already signaled defeat...
> that a free market does not require equal distribution of resources among participants
To be clear, I never claimed that it does. I claimed that free markets don't really exist. It is actually very easy to disprove my claim, it merely requires one to produce a counter-example, that is, point to an instance of a free market.
If you can provide a counter-example, I will respond, as I believe I will be able to show you a market that is (likely) rife with coercion.
What I claimed is that existing markets are typically extremely asymmetrical in regard to how information and resources are distributed among the participants. Most participants in the "free market" that is the USA have comparatively no information or resources vs. the largest participants. Additionally, many of those who lack information and/or resources are survivally dependent in some way on the largest participants which is typically where the coercion is allowed (or designed) to creep in. Some research[1] has found that even seemingly small amounts of asymmetry lead to large systemic effects. In the cited case, it was found that those who update their market strategy (who to bid against and at what price) fastest will cyclically be able to achieve much higher values of money than those who update their strategies at a slower rate. When you map these results to their real-world analogues, it is established participants (corporations) that are able to update their strategies faster (analytics, espionage, acquisitions & mergers, political purchasing) while individuals are unable to update as quickly. For example, I can't really negotiate with and/or continually swap between competitors of: PG&E/AT&T/NBCComcastUniversal/TimeWarner/Verizon/etc/etc. To some extent I can swap (update my strategy), but not at the same rate that they are able to update theirs (for example, an airline can change prices on demand, multiple times per day). Typically I can't even access historical market pricing, while the incumbents have access to (and exploit) almost all historical market data.
[1] http://arxiv.org/pdf/1201.3798v3.pdf
Edit: If you are going to down-vote, please provide a counter-example.
It wasn't until after WW1, and in reality after WWII--which left basically the entire rest of developed civilization in a shambles--and lots of government intervention in the "free market" that the US became the economic power that it is.
The US became the economic power that it is today, after the Civil War, due to industrialization and vast business creation. Between 1870 and 1900 it became the world's largest economy (and for those decades was consistently the world's fastest growing economy, by far). By WW1, the US had arguably a more powerful economic position than it does today (and it already had as great a share of global GDP as it does today).
http://www.quora.com/Economic-History/At-what-point-did-the-...
It's also worth noting, what largely made the US the world's largest economy between 1870 and 1900, was value added manufacturing and not merely possessing vast natural resources (obviously possessing those resources made it far easier to manufacture; but many other resource rich nations did not accomplish the same outcome). As that Quora link references, the US was producing more steel than the combined output of Germany, France and Britain. The US was one of the primary leaders of the technology + science revolution that we refer to as the industrial revolution. By the time WW1 rolled around, the US was already the dominant manufacturing power.
It doesn't guarantee perfect or instant protection, it drastically increases the odds of eventual consequences. The reason for that is, human knowledge (eg about someone's reputation) isn't acquired or shared instantly, it's a process requiring time. It's a 95% good enough premise, but not a 100% guarantee. Historically it works incredibly well over time.
The modern examples at a large scale are plentiful as well. Costco for example has a tremendous reputation, and I would argue it has substantially aided it in, essentially, besting Sam's Club. Costco proved you can defeat even the largest of incumbent in the market by doing things better for customers and employees.
A solution can be to accept to suffer and die abruptly after making a load of money in a short spark.
Or you can get a maximum of money and influence in a very short spike and use your position then to block concurrents from catching up while your reputation goes down the hill.
Or you can grow the company responsible on good bases, make sure you won't get displaced/disrupted, and then go full shady.
Or you go full shady from the start but have some entity protect you from the consequences and let you grow untouched.
A good reputation is a business advantage, but it's just one among others, and you can compensate for it if you have other strong cards to play.
The balance between predatory and counter-predatory behaviour is the story of life on earth and human civilisation.
There will never be "a" solution.
Surely a good reputation is better than a bad one, and Mr. Buffett is successful in light of the reputations in which he invests, but this is not the sum total of companies enjoying capital success.
This is what I mean by capitalism not discouraging dirty tricks: it may encourage not using dirty tricks, but using dirty tricks is not a disqualifier for success, nor do dirty tricks always result in a universally poor reputation that would kill companies in other contexts.