6 ms·

Free markets have a well established, well understood "tendency towards monopoly." A truly free market is one dominated by cartels [0] (not to be thought of as

by badRNG 5y ago

Free markets have a well established, well understood "tendency towards monopoly." A truly free market is one dominated by cartels [0] (not to be thought of as something unique to the drug industry.) The market forces that spur innovation like competition, absent a government that intervenes, best resolves competition through either ceaseless merging or subsumption of the competition. The domination of markets by cartels is seen in countries whose governments have either been effectively captured by industry or are otherwise incapable of intervening in the affairs of the market. Prior to antitrust legislation, cartels dominated industries at the dawn of the capitalist economy. Merging with competition allows both players to charge more without providing greater value, which is always the best option for both players. [0] https://en.wikipedia.org/wiki/Cartel https://en.wikipedia.org/wiki/Cartel

AnthonyMouse 5y ago
> Free markets have a well established, well understood "tendency towards monopoly." There is actually a lot of debate about what causes this. The argument on one side is, of course companies unconstrained by laws would collude with each other to fix prices etc. The argument on the other side is, as soon as they start doing this it becomes profitable for someone else to enter the market. Is the cartel charging $40 for something that should cost $20? Go around to all the customers and tell them you'll sell to them for $25 tomorrow if they agree to a long-term contract today to buy from you at that price. Then you have enough guaranteed customers to pay off your new factory, so you can build it without being bankrupted by the incumbents slashing prices. And because anyone can do this, the incumbents don't collude to charge $40 to begin with because they know they would invite it. Under this theory, monopolies form because of regulatory capture. The large incumbents don't want to compete in a commodity market, so they pay off the government to erect barriers to entry. Then once no one new can enter the market, they can buy each other or collude or use conscious parallelism without risk of new competitors. It seems to me that it's kind of both. Without the second one, companies would rarely if ever get big enough that no one could compete with them. But once they are, somebody's got to break them up. Most importantly, we need to fix the regulatory environment so that it facilitates rather than impairs competition, or it will just happen again.
- fn-mote 5y ago
  > Go around to all the customers and tell them you'll sell to them for $25 tomorrow if they agree to a long-term contract today to buy from you at that price. This argument seems tenuous. I see the customer's risk. Where is your risk? A source with details of this argument would also help. If you have are an economist, please mention it - I'll take the argument more seriously on your say-so.
  - rendall 5y ago
    What's the risk to the customer? They get a $25 thing tomorrow or they pay the normal price.
    - midasuni 5y ago
      They go bust as the cartel drops to $20, so the company locked into $25 is paying over the odds compared to competitors
  - AnthonyMouse 5y ago
    > This argument seems tenuous. I see the customer's risk. Where is your risk? The purpose of the contract is to reduce your risk. The original problem was that if you built the factory intending to sell for $25, the incumbents could reduce the price to $20 or $15, i.e. below your cost. Then you could never recover your initial investment and the high probability of that happening would deter you from entering the market to begin with. The customer takes the risk because if you don't enter the market, they're paying $40 to the incumbents. > If you have are an economist, please mention it - I'll take the argument more seriously on your say-so. Professional economists have a reputation that compares disfavorably with psychics and astrologers. If an economist gives you your horoscope, make sure to get a second opinion. If the second opinion is from another economist, expect it to be different. "The track record of economists in predicting events is monstrously bad. It is beyond simplification; it is like medieval medicine." -Nassim Nicholas Taleb
    - jquery 5y ago

by badRNG 5y ago

AnthonyMouse 5y ago

> Free markets have a well established, well understood "tendency towards monopoly." There is actually a lot of debate about what causes this. The argument on one side is, of course companies unconstrained by laws would collude with each other to fix prices etc. The argument on the other side is, as soon as they start doing this it becomes profitable for someone else to enter the market. Is the cartel charging $40 for something that should cost $20? Go around to all the customers and tell them you'll sell to them for $25 tomorrow if they agree to a long-term contract today to buy from you at that price. Then you have enough guaranteed customers to pay off your new factory, so you can build it without being bankrupted by the incumbents slashing prices. And because anyone can do this, the incumbents don't collude to charge $40 to begin with because they know they would invite it. Under this theory, monopolies form because of regulatory capture. The large incumbents don't want to compete in a commodity market, so they pay off the government to erect barriers to entry. Then once no one new can enter the market, they can buy each other or collude or use conscious parallelism without risk of new competitors. It seems to me that it's kind of both. Without the second one, companies would rarely if ever get big enough that no one could compete with them. But once they are, somebody's got to break them up. Most importantly, we need to fix the regulatory environment so that it facilitates rather than impairs competition, or it will just happen again.

fn-mote 5y ago
> Go around to all the customers and tell them you'll sell to them for $25 tomorrow if they agree to a long-term contract today to buy from you at that price. This argument seems tenuous. I see the customer's risk. Where is your risk? A source with details of this argument would also help. If you have are an economist, please mention it - I'll take the argument more seriously on your say-so.
- rendall 5y ago
  What's the risk to the customer? They get a $25 thing tomorrow or they pay the normal price.
  - midasuni 5y ago
    They go bust as the cartel drops to $20, so the company locked into $25 is paying over the odds compared to competitors
- AnthonyMouse 5y ago
  > This argument seems tenuous. I see the customer's risk. Where is your risk? The purpose of the contract is to reduce your risk. The original problem was that if you built the factory intending to sell for $25, the incumbents could reduce the price to $20 or $15, i.e. below your cost. Then you could never recover your initial investment and the high probability of that happening would deter you from entering the market to begin with. The customer takes the risk because if you don't enter the market, they're paying $40 to the incumbents. > If you have are an economist, please mention it - I'll take the argument more seriously on your say-so. Professional economists have a reputation that compares disfavorably with psychics and astrologers. If an economist gives you your horoscope, make sure to get a second opinion. If the second opinion is from another economist, expect it to be different. "The track record of economists in predicting events is monstrously bad. It is beyond simplification; it is like medieval medicine." -Nassim Nicholas Taleb
  - jquery 5y ago