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Falling prices is not always indicative of a well-functioning competitive market. Rockefeller was known to deliberately lose money to undercut his competitors

by bumby 6mo ago

Falling prices is not always indicative of a well-functioning competitive market. Rockefeller was known to deliberately lose money to undercut his competitors and put them out of business. With enough scale, a near-monopoly can provide irrational predatory pricing long enough make competitors insolvent. In between, it looks like the near monopoly is losing market share while prices drop. Without taking the larger context, it's easy to misconstrue the long-term anti-competitive systemic effects.

WalterBright 6mo ago
Rockefeller did not get rich by losing money. Nor did Rockefeller eliminate his competitors. He never got more than a 90% market share. SO was not tried for being a monopoly, it was tried for trying to create one. SO's market share sank during the trial, as Rockefeller's competitors learned how to compete with him. See "Titan" by Chernow. > With enough scale, a near-monopoly can provide irrational predatory pricing long enough make competitors insolvent. The reason this doesn't work is if X has 10 times the market share of Y, if X wants to lose money to hurt Y, X loses 10 times the money that Y loses. I.e. the larger the market share of X is, the proportionately more money is lost trying to undercut Y.
- bumby 6mo ago
  Chernow is more of a laity source than an academic one. Fun to read, but it’s not a strong source. He tends to over emphasize the efficiency side and neglect the logistical barriers to entry and many would consider Chernows thesis incomplete. If your claim is that someone needs to have 100% market to be anti-competitive, we’re talking past each other. I know HN can have relatively high levels of binary thinking, but the real world is more complicated and nuanced. X doesn’t have to perpetually lose money, just long enough to put Y out of business. Modern definitions of predatory pricing did not exist at the time, but that is essentially what Standard Oil was found guilty of in their day. They can also lose market share as new markets emerge but that doesn’t undermine the monopoly argument. If I have a utility in TX and another utility opens in CA, my regulated monopoly is still intact.
  - WalterBright 6mo ago
    SO had a significantly lower cost structure, it didn't need to lose money. The nuance is throughout the SO anti-trust trial, SO was losing market share. SO's main method of growing was to buy out competitors, and made them rich with SO stock.
    - bumby 6mo ago
      The court case found SO used local aggressive price cutting until competitors were driven out. That’s why they were broken up. I don’t think there is court evidence whether they lost money (although there’s speculation) in those cases because that standard wasn’t established until later antitrust cases. But once competitors were gone SO raised prices. SO still meet the threshold for monopolistic operation. Yes, SO had a lower cost structure in many cases. But efficiency is not the determining factor for antitrust behavior. That’s the chink in Chernows perspective: he focuses almost solely of efficiency argument and ignores the larger context. And not to be snarky, but that’s the same pattern you take whether you defend Rockefeller, Musk, or any other business magnate. There’s a narrative you identify with and you’ll stick to it almost to the point of circular reasoning.

by bumby 6mo ago

WalterBright 6mo ago

Rockefeller did not get rich by losing money. Nor did Rockefeller eliminate his competitors. He never got more than a 90% market share. SO was not tried for being a monopoly, it was tried for trying to create one. SO's market share sank during the trial, as Rockefeller's competitors learned how to compete with him. See "Titan" by Chernow. > With enough scale, a near-monopoly can provide irrational predatory pricing long enough make competitors insolvent. The reason this doesn't work is if X has 10 times the market share of Y, if X wants to lose money to hurt Y, X loses 10 times the money that Y loses. I.e. the larger the market share of X is, the proportionately more money is lost trying to undercut Y.

bumby 6mo ago
Chernow is more of a laity source than an academic one. Fun to read, but it’s not a strong source. He tends to over emphasize the efficiency side and neglect the logistical barriers to entry and many would consider Chernows thesis incomplete. If your claim is that someone needs to have 100% market to be anti-competitive, we’re talking past each other. I know HN can have relatively high levels of binary thinking, but the real world is more complicated and nuanced. X doesn’t have to perpetually lose money, just long enough to put Y out of business. Modern definitions of predatory pricing did not exist at the time, but that is essentially what Standard Oil was found guilty of in their day. They can also lose market share as new markets emerge but that doesn’t undermine the monopoly argument. If I have a utility in TX and another utility opens in CA, my regulated monopoly is still intact.
- WalterBright 6mo ago
  SO had a significantly lower cost structure, it didn't need to lose money. The nuance is throughout the SO anti-trust trial, SO was losing market share. SO's main method of growing was to buy out competitors, and made them rich with SO stock.
  - bumby 6mo ago
    The court case found SO used local aggressive price cutting until competitors were driven out. That’s why they were broken up. I don’t think there is court evidence whether they lost money (although there’s speculation) in those cases because that standard wasn’t established until later antitrust cases. But once competitors were gone SO raised prices. SO still meet the threshold for monopolistic operation. Yes, SO had a lower cost structure in many cases. But efficiency is not the determining factor for antitrust behavior. That’s the chink in Chernows perspective: he focuses almost solely of efficiency argument and ignores the larger context. And not to be snarky, but that’s the same pattern you take whether you defend Rockefeller, Musk, or any other business magnate. There’s a narrative you identify with and you’ll stick to it almost to the point of circular reasoning.