3 ms·

Just to expand on this, it's the sort of thing that sounds like it shouldn't work, because the competition can just wait you out and raise prices down the road

Just to expand on this, it's the sort of thing that sounds like it shouldn't work, because the competition can just wait you out and raise prices down the road too. But it can, because relative advantage is stateful and path-dependent. If you lay off skilled workers, cancel contracts, close factories, lose customer mindshare, and so on, that damage can be very hard to reverse even when favourable conditions eventually reappear.

cjcole 5y ago
What allows this tactic to work is the size asymmetry between very large companies and smaller companies. It is much less effective against similarly sized companies. Very large companies have much more buffer (reserves of capital, talent, etc.) to draw from. The very large company can absorb layoffs, cancelations, closures, and mindshare losses longer than a much smaller and very likely leaner company can. Defining what does and does not constitute predatory behavior is difficult to define clearly and concisely. One potential mitigation, given the above, would be to routinely break up companies above a certain size. To make it perfectly typical, ordinary, and automatic to do so. To shift the burden of proof from the government needing to establish monopoly status to the giant company needing to demonstrate that the consumer benefits due to economies of scale derived from its size outweigh the negative externalities due to its size and subsequent disproportionate power and influence. Economies of scale leading to lower consumer prices are a positive good. The negative externalities of huge companies due to their size and outsized power and influence aren't given as much consideration as they are less quantifiable, but they are real and should be taken into account.
- moftz 5y ago
  Forcing companies to break up can have the unintentional effect of creating cartels where the previously joined companies of similar size work together to push out smaller companies with price fixing. If there is only so much business to be done and there's no realistic way for you to cover a majority of the industry, you can make more money pushing out any of the competition that won't keep prices fixed.
BeFlatXIII 5y ago
You’ve just described why I am so cynical about the magic of free market competition. Often, the competition has absolutely nothing to do with the price, features, and quality of the product being offered. It’s competition on the business side of things that artificially removes a better competitor from the market because they couldn’t keep their supplier contracts locked in.

cjcole 5y ago

What allows this tactic to work is the size asymmetry between very large companies and smaller companies. It is much less effective against similarly sized companies. Very large companies have much more buffer (reserves of capital, talent, etc.) to draw from. The very large company can absorb layoffs, cancelations, closures, and mindshare losses longer than a much smaller and very likely leaner company can. Defining what does and does not constitute predatory behavior is difficult to define clearly and concisely. One potential mitigation, given the above, would be to routinely break up companies above a certain size. To make it perfectly typical, ordinary, and automatic to do so. To shift the burden of proof from the government needing to establish monopoly status to the giant company needing to demonstrate that the consumer benefits due to economies of scale derived from its size outweigh the negative externalities due to its size and subsequent disproportionate power and influence. Economies of scale leading to lower consumer prices are a positive good. The negative externalities of huge companies due to their size and outsized power and influence aren't given as much consideration as they are less quantifiable, but they are real and should be taken into account.

moftz 5y ago
Forcing companies to break up can have the unintentional effect of creating cartels where the previously joined companies of similar size work together to push out smaller companies with price fixing. If there is only so much business to be done and there's no realistic way for you to cover a majority of the industry, you can make more money pushing out any of the competition that won't keep prices fixed.

BeFlatXIII 5y ago

You’ve just described why I am so cynical about the magic of free market competition. Often, the competition has absolutely nothing to do with the price, features, and quality of the product being offered. It’s competition on the business side of things that artificially removes a better competitor from the market because they couldn’t keep their supplier contracts locked in.