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That's very well. Some industries mature and new companies don't enter those industries because they are taken. For example, not many people attempt to go into

by snitko 12y ago

That's very well. Some industries mature and new companies don't enter those industries because they are taken. For example, not many people attempt to go into the soft drinks market. Why? Because there's Coca-Cola and Pepsi. How idiotic would that seem if government started saying things like "we need soft drinks neutrality so every McDonalds is now obligated to sell you both Coca Cola or Pepsi and that new competitor who just entered the market". That wouldn't solve any real problem, as you can imagine. If there is a problem, let consumers decide directly, not government.

aninhumer 12y ago
>How idiotic would that seem if government started saying things like "we need soft drinks neutrality Well yeah, that would be a pretty awkward way to encourage competition in the soft drinks market. However, they do say things like: "You can't temporarily drop your prices just to wipe out competition." and "You can't agree on prices with Pepsi to avoid price competition" which work pretty well to keep that market competitive.
- snitko 12y ago
  There's no evidence predatory pricing is effective. It's fear mongering. Suppose you have company A trying to outprice company B, which is a much smaller company. If company A wants to drop its prices, it can't just drop prices on just the number of products equivalent to the market share of B, it has to drop prices on the whole line of products of its own. Even if it succeeds in defeating company B, it has to make sure it will make up for the losses in the future. And who's to guarantee another company C isn't going to use the situation, knowing full well company A cannot afford another round of predatory pricing? Therefore, for company A it's much less riskier to compete with B on the market by doing honest things, rather than cheating with predatory pricing and hoping company C will not come to crush it.
  - aninhumer 12y ago
    >it has to drop prices on the whole line of products of its own. Why? >And who's to guarantee another company C isn't going to use the situation, knowing full well company A cannot afford another round of predatory pricing? The competitiveness of a market depends on the costs of entering it. If the amount of capital needed to enter the market is significant, new entrants willing to risk that much will be much less frequent. Predatory pricing allows monopolies to artificially raise those costs, simply by amassing a reserve of cash. Indeed, the real problem is not company B being defeated, but company B never even trying because the returns just aren't enough to justify the inflated entry cost. Company C never gets a chance.
    - snitko 12y ago
      > Why? Suppose you produce socks and another company does the same and tries to compete. You produce 1 million socks a month and another company only 10 thousand. You obviously can't just drop prices on 10 thousands socks of yours, because that would still allow your competitor to stay in business - since there is demand for the rest of 990k of socks at your high price, your competitor would simply grab another 10k of your socks market share and then you'll only be able to sell 980k at your high price and not 990k. You actually have to drop prices on all 1 million socks of yours, which is going to be pretty damn detrimental to your profits. > The competitiveness of a market depends on the costs of entering it. What's there to prevent a rich investor from entering the market and competing? Google had no problem competing with Apple on the smartphone market, it seems. The goal is not to allow anyone with no money to compete. The goal is to allow to compete companies who have sufficient resources to do so. That's what the competition is about.
      - aninhumer 12y ago
        >You obviously can't just drop prices on 10 thousands socks of yours, because that would still allow your competitor to stay in business Ah sorry, I misunderstood. I thought you were suggesting they'd have to drop prices on a range of different products. >What's there to prevent a rich investor from entering the market and competing? The fact that there isn't an infinite supply of rich investors queueing up to disrupt markets. And that there are likely much better investment opportunities than entering an expensive price war just to gain a foothold in a newly competitive market (at which point company C can enter, and reap the same benefits without the inflated upfront costs).

by snitko 12y ago

aninhumer 12y ago

>How idiotic would that seem if government started saying things like "we need soft drinks neutrality Well yeah, that would be a pretty awkward way to encourage competition in the soft drinks market. However, they do say things like: "You can't temporarily drop your prices just to wipe out competition." and "You can't agree on prices with Pepsi to avoid price competition" which work pretty well to keep that market competitive.

snitko 12y ago
There's no evidence predatory pricing is effective. It's fear mongering. Suppose you have company A trying to outprice company B, which is a much smaller company. If company A wants to drop its prices, it can't just drop prices on just the number of products equivalent to the market share of B, it has to drop prices on the whole line of products of its own. Even if it succeeds in defeating company B, it has to make sure it will make up for the losses in the future. And who's to guarantee another company C isn't going to use the situation, knowing full well company A cannot afford another round of predatory pricing? Therefore, for company A it's much less riskier to compete with B on the market by doing honest things, rather than cheating with predatory pricing and hoping company C will not come to crush it.
- aninhumer 12y ago
  >it has to drop prices on the whole line of products of its own. Why? >And who's to guarantee another company C isn't going to use the situation, knowing full well company A cannot afford another round of predatory pricing? The competitiveness of a market depends on the costs of entering it. If the amount of capital needed to enter the market is significant, new entrants willing to risk that much will be much less frequent. Predatory pricing allows monopolies to artificially raise those costs, simply by amassing a reserve of cash. Indeed, the real problem is not company B being defeated, but company B never even trying because the returns just aren't enough to justify the inflated entry cost. Company C never gets a chance.
  - snitko 12y ago
    > Why? Suppose you produce socks and another company does the same and tries to compete. You produce 1 million socks a month and another company only 10 thousand. You obviously can't just drop prices on 10 thousands socks of yours, because that would still allow your competitor to stay in business - since there is demand for the rest of 990k of socks at your high price, your competitor would simply grab another 10k of your socks market share and then you'll only be able to sell 980k at your high price and not 990k. You actually have to drop prices on all 1 million socks of yours, which is going to be pretty damn detrimental to your profits. > The competitiveness of a market depends on the costs of entering it. What's there to prevent a rich investor from entering the market and competing? Google had no problem competing with Apple on the smartphone market, it seems. The goal is not to allow anyone with no money to compete. The goal is to allow to compete companies who have sufficient resources to do so. That's what the competition is about.
    - aninhumer 12y ago
      >You obviously can't just drop prices on 10 thousands socks of yours, because that would still allow your competitor to stay in business Ah sorry, I misunderstood. I thought you were suggesting they'd have to drop prices on a range of different products. >What's there to prevent a rich investor from entering the market and competing? The fact that there isn't an infinite supply of rich investors queueing up to disrupt markets. And that there are likely much better investment opportunities than entering an expensive price war just to gain a foothold in a newly competitive market (at which point company C can enter, and reap the same benefits without the inflated upfront costs).