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>> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outri

>> Without external restraints, any sufficiently large company will focus on eliminating competition either through pricing them out of the market or just outright buying them. > The counterargument is that this only happens in markets with high barriers to entry, which in turn are mostly caused by regulatory barriers. Not necessarily. For instance: if the barriers to entry are zero but the monopoly can price things below cost (e.g. due to cash reserves or strength in other markets), it can bury any competitor. The mere existence of that ability could have a deterrent effect that prevents competitors from forming in the first place.

AnthonyMouse 5y ago
> For instance: if the barriers to entry are zero but the monopoly can price things below cost (e.g. due to cash reserves or strength in other markets), it can bury any competitor. The mere existence of that ability could have a deterrent effect that prevents competitors from forming in the first place. If barriers to entry are zero, the deterrent doesn't exist, because the deterrent works by forcing the competitor to pay the cost of entry without ever making any profits to recover it. Now suppose barriers to entry are low. Not even zero -- say it's $10,000. Some individual shows up, pays the $10,000, and the monopoly slashes prices so they can never recover their $10,000. But they got into it because they're a stubborn former customer who doesn't like how they've been treated, so making billions of dollars isn't the point. Their goal is to screw the monopolist. Which means all they have to do is sit on the ability to make product indefinitely and use it as soon as the monopolist attempts to raise prices above cost. To prevent this the monopolist would have to sell below cost indefinitely. But in that case the potential competition is keeping them in check as much as actual competition would. And this works even better when disgruntled former customers get together, so that it's not one guy willing to pay $10,000 to spite the monopolist but 10,000 customers each willing to pay $1. Where this falls down is when the price of entry becomes billions and involves a major risk of failure.
- lovich 5y ago
  I mean, I’m pretty sure it fails down when the theory relies on people willing to burn capital solely to stick it to someone else. That’s less like innovation and investment and more like warfare. It also runs counter to all observed behavior. A lot of these regulatory barriers can be overcome by money and we don’t see disgruntled people/groups banding together to provide services or goods at a loss
- dwohnitmok 5y ago
  > Which means all they have to do is sit on the ability to make product indefinitely and use it as soon as the monopolist attempts to raise prices above cost. You're underestimating the economic tools at the disposal of large companies. Lucrative contracts with suppliers that prevent selling to competitors, vertical integration where they just buy the suppliers outright, attack advertising, poaching employees, etc. A lot of these can happen even without active malice. Selling below cost is just one of many tools. There are many many ways an economically powerful player can strongarm competitors into submission. None of these are foolproof (and nothing in politics or economics is), but they all make the barrier to entry higher, sometimes almost impossibly high even in the absence of regulation (that is to say thinking of barrier to entry as something that is independent of a monopoly is not a good model, monopolies are intrinsically a barrier to entry).
sebazzz 5y ago
Exactly. Like Amazon.

AnthonyMouse 5y ago

> For instance: if the barriers to entry are zero but the monopoly can price things below cost (e.g. due to cash reserves or strength in other markets), it can bury any competitor. The mere existence of that ability could have a deterrent effect that prevents competitors from forming in the first place. If barriers to entry are zero, the deterrent doesn't exist, because the deterrent works by forcing the competitor to pay the cost of entry without ever making any profits to recover it. Now suppose barriers to entry are low. Not even zero -- say it's $10,000. Some individual shows up, pays the $10,000, and the monopoly slashes prices so they can never recover their $10,000. But they got into it because they're a stubborn former customer who doesn't like how they've been treated, so making billions of dollars isn't the point. Their goal is to screw the monopolist. Which means all they have to do is sit on the ability to make product indefinitely and use it as soon as the monopolist attempts to raise prices above cost. To prevent this the monopolist would have to sell below cost indefinitely. But in that case the potential competition is keeping them in check as much as actual competition would. And this works even better when disgruntled former customers get together, so that it's not one guy willing to pay $10,000 to spite the monopolist but 10,000 customers each willing to pay $1. Where this falls down is when the price of entry becomes billions and involves a major risk of failure.

lovich 5y ago
I mean, I’m pretty sure it fails down when the theory relies on people willing to burn capital solely to stick it to someone else. That’s less like innovation and investment and more like warfare. It also runs counter to all observed behavior. A lot of these regulatory barriers can be overcome by money and we don’t see disgruntled people/groups banding together to provide services or goods at a loss
dwohnitmok 5y ago
> Which means all they have to do is sit on the ability to make product indefinitely and use it as soon as the monopolist attempts to raise prices above cost. You're underestimating the economic tools at the disposal of large companies. Lucrative contracts with suppliers that prevent selling to competitors, vertical integration where they just buy the suppliers outright, attack advertising, poaching employees, etc. A lot of these can happen even without active malice. Selling below cost is just one of many tools. There are many many ways an economically powerful player can strongarm competitors into submission. None of these are foolproof (and nothing in politics or economics is), but they all make the barrier to entry higher, sometimes almost impossibly high even in the absence of regulation (that is to say thinking of barrier to entry as something that is independent of a monopoly is not a good model, monopolies are intrinsically a barrier to entry).

sebazzz 5y ago

Exactly. Like Amazon.