2 ms·

Mergers wouldn't be so desirable if there weren't various misguided "anti-trust" regulations providing artificial economies of scale. Two separate companies ar

by wyager 6y ago

Mergers wouldn't be so desirable if there weren't various misguided "anti-trust" regulations providing artificial economies of scale. Two separate companies are not allowed to coordinate the prices of their products. We derogate this behavior as "price fixing". If the same company sells two different products, it is of course allowed to coordinate their prices. We have many rules such as this, where mergers give companies capabilities that we have artificially suppressed in their smaller, less monolithic competitors.

satellite2 6y ago
That's actually a fantastic and simple argument for why mergers should be blocked more often.
AnthonyMouse 6y ago
Price fixing is prohibited because it's catastrophic. What would the price of food be if all the farmers could collude to charge the profit-maximizing price? What would rents be if landlords could collude? Energy companies? Transportation companies? Monopoly utility companies generally have price regulations because otherwise the monopolist would charge the monopoly price. The monopoly price is inefficient because it results in significantly less production (because of the high price deterring consumption) than would take place in a competitive market. Allowing collusion across an industry is nothing more than bringing about an informal monopoly rather than a formal one.
- wyager 6y ago
  > What would the price of food be if all the farmers could collude to charge the profit-maximizing price? I don’t know, what would the price of food be if unicorns were real? Who cares; this is not a realistic scenario. Defection is handsomely rewarded in almost any realistic market, outside of a few narrow cases that have extra physical constraints (e.g. power and water delivery).
  - AnthonyMouse 6y ago
    You're proposing for price fixing agreements to be legal, at which point companies could enter into a contract to fix prices and be able to sue each other for defection in court. But also, what you're describing is already what happens in more consolidated markets that can coordinate without formal contracts enforced by the government, because defection isn't profitable if you expect the incumbent competitors to respond in kind.
    - wyager 6y ago
      Defectors don’t have to be one of the contract participants. People are free to create new companies. Price-busting venture capital would be a whole industry if price-fixing was legal. It doesn’t even have to happen very often; the counterfactual possibility of getting busted is enough to keep price fixes reasonable.

by wyager 6y ago

satellite2 6y ago

That's actually a fantastic and simple argument for why mergers should be blocked more often.

AnthonyMouse 6y ago

Price fixing is prohibited because it's catastrophic. What would the price of food be if all the farmers could collude to charge the profit-maximizing price? What would rents be if landlords could collude? Energy companies? Transportation companies? Monopoly utility companies generally have price regulations because otherwise the monopolist would charge the monopoly price. The monopoly price is inefficient because it results in significantly less production (because of the high price deterring consumption) than would take place in a competitive market. Allowing collusion across an industry is nothing more than bringing about an informal monopoly rather than a formal one.

wyager 6y ago
> What would the price of food be if all the farmers could collude to charge the profit-maximizing price? I don’t know, what would the price of food be if unicorns were real? Who cares; this is not a realistic scenario. Defection is handsomely rewarded in almost any realistic market, outside of a few narrow cases that have extra physical constraints (e.g. power and water delivery).
- AnthonyMouse 6y ago
  You're proposing for price fixing agreements to be legal, at which point companies could enter into a contract to fix prices and be able to sue each other for defection in court. But also, what you're describing is already what happens in more consolidated markets that can coordinate without formal contracts enforced by the government, because defection isn't profitable if you expect the incumbent competitors to respond in kind.
  - wyager 6y ago
    Defectors don’t have to be one of the contract participants. People are free to create new companies. Price-busting venture capital would be a whole industry if price-fixing was legal. It doesn’t even have to happen very often; the counterfactual possibility of getting busted is enough to keep price fixes reasonable.