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So, when we talk naively about free markets we commonly ignore the Firm. In industries you have the propensity for cartels to form, or for "industry standards"
by betwixthewires 4y ago
So, when we talk naively about free markets we commonly ignore the Firm. In industries you have the propensity for cartels to form, or for "industry standards" to come to exist that enable actors to work against the interest of their consumers.
You also get economies of scale that lead to capital concentration, razor thin margins and extreme efficiency reliant on capital intensive business models. As a result you wind up with massive barriers to entry for new competitors, and so the usual "someone will come along and outcompete" doesn't really work. It works when you're selling doodads and fruit, but semiconductors and car manufacturing aren't fruit.
In particular, industries that become foundational to the workings of a society become impossible to avoid engaging in. In the US, cars are a given, you have to have a car. One car company does something and gets away with it with their customers, so the rest follow suit and now you're in an environment where everyone does it and there's no way out. There's no direct collusion here, just neither has an interest in competing on a front because the the practice benefits them both.
This is where industry regulation comes in. It comes in only when it isn't an entirely free transaction between two parties. Where a party must use a product or service, or where competitors collude directly or indirectly, state action is warranted. Examples where the party must use a product would be cars, food and car insurance. Direct collusion is interactive, indirect is passive, such as an entire industry without direct cooperation engaging in practices like this.
- TedDoesntTalk 4y agoI suppose it can work to the benefit of consumers, too… sometimes. Remember when the cell service providers all charged per text message? And had plans with “minutes”?
- rpadovani 4y agoCries in German. In Italy, prices started going down for mobile only when, back in 2007, they introduced a law to make unlawful minimum duration of contracts. After that, given users could switch each month, prices went really down 'cause there was a _real_ market. Here in Germany, you are locked to an operator for 24 months, and prices are crazy high. So, yes, please, more regulations.
- amardeep 4y agoIt reminds me of inkjet printers and the issue with ink cartridges. Free market doesn't always result in an equilibrium which is not consumer hostile.
- dash2 4y agoI don't think the cartel answer is a good one. The standard problem with cartels is that prices are too high. There seems no reason why this would be more or less of a problem with the approach of renting services. Also, the claim that the car market is uncompetitive is not so easy to make. The top 5 players have about half of the market.[1] This is less concentrated than (say) the market for breakfast cereal. The market is quite global. Artificial barriers to entry have not stopped numerous recent entrants. It might even be that new pricing strategies like selling services will allow more entrants to the market - Tesla being the obvious example. [1] https://courses.lumenlearning.com/suny-microeconomics/chapter/competition-among-the-few/ https://courses.lumenlearning.com/suny-microeconomics/chapte... - probably not the best source but ok for a quickie.