August 21, 2017 at 12:48 pm #539
AnCom & the Myth of Monopoly
Below are four questions regarding AnCom and Monopoly for @empifur, and/or @jacob, and/or just anyone that would like to take a stab at playing the ‘AnCom’ in the conversation. Below the questions is the dialogue that produced the questions (with the questions in-context) — that should jog your memory and/or prevent us from doubling back (hopefully!).
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1. Would you agree that murdering competitors is a tactic that at best can temporarily reduce competition, but it cannot eliminate it?
2. The assumption is that suspicious deaths occur within an industry and meetings are called, and resources are pooled to investigate, identify, and apprehend the murderer(s). The assumption is that they catch the murderer — one of their own, as it turns out — dead to rights. The assumption is that they kill the murderer, and make it well known that all such would-be murderers in their industry would meet the same fate. Wouldn’t this serve as a deterrent to other would-be murderers in their industry?
3. Wouldn’t it be a bad business strategy to murder competitors if for no other reason than because if it ever came to light what they did, people would likely switch brands if there were any left to choose from, and if there weren’t, start new firms (with better arms and defenses than their dearly departed predecessors)?
4. If you can’t find any source that is convinced that predatory pricing can actually eliminate competition, what has you so convinced it can?
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Origin of Question #1
AnCom: Capitalists collude with the State to eliminate competition by force.
AnCap: Does this mean capitalists could not eliminate competition by force without the use of the State?
AnCom: No, using the power of the State is but one way capitalists eliminate competition by force.
AnCap: What other ways – without State – can capitalists successfully eliminate their competition?
AnCom: They can eliminate competitors 4 ways: by holding monopolies, killing the competitors, intimidating the competitors, and removing the competitors via the use of predatory pricing.
AnCap: What is a ‘monopoly’?
AnCom: A ‘monopoly’ is an organization of the market such that one individual or entity controls the entirety of the economy necessary to provide a particular good or service to the public, or nearly so.
AnCap: Would you grant that based on this definition we can take this off the list of ‘ways’ for eliminating competition? (Isn’t it really the end-result of having eliminated the competition and/or successfully maintaining the elimination of the competition – that is, not really a ‘way’ of eliminating competition, right?)
AnCom: I’ll grant that.
AnCap: So that means there are just three ways of eliminating competition: (1) killing, (2) intimidation, and (3) predatory pricing.
But… Is killing competitors even a realistic way to eliminate competition?
AnCom: Certainly. Upon eliminating a competitor, another won’t just immediately pop up — it takes time, during which one can continue to dominate the market.
AnCap: It would take time, sure, but what would prevent new, more heavily armed competitors from arising?
AnCap: Question #1: Would you agree that murdering competitors is a tactic that at best can temporarily reduce competition, but it cannot eliminate it?
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Origin of Question #2
AnCap: After one or two competitors got killed, wouldn’t the other competitors just ban together and eliminate the murderer?
AnCom: Even if competitors banned together to take out the murderer, it doesn’t make it necessarily a deterrent that would have an impact on stopping the murder of competitors.
AnCap: If you take out a murderer, the murderer’s death wouldn’t be a deterrent to others?
AnCom: To believe that would require one to believe that, for example, longer jail sentences tends to deter murder in the U.S. today, when all evidence indicates that length of prison sentence does not have a significant deterrent effect.
AnCap: We’re not talking about imprisoning competitors, or even capital punishment of those convicted of murder. No offense, but I’m having a difficult time connecting your analogy to the subject in any meaningful way?
If one of my competitors began murdering the rest of us, and we banned together, hunted the murderer down, and killed him, letting it be known any other would be industry-wide murderer would meet the same fate, my ‘belief’ is that it would be a deterrent to others in our industry thinking they might try the same thing, much the same way you ‘believe’ murdering one or more competitors would be a deterrent from others from trying to compete — I’m simply pointing out the deterrent cuts both ways, so why would you expect one to win out over the other, and why your deterrent instead of mine?
AnCom: First of all, back up a second: you’re assuming you and your industry mates are able to find out who it is that is committing the murders — if you can’t, your plan will fail.
AnCap: Yes, that is the assumption. Let’s talk about this assumption first, and then let’s visit the alternate hypothetical (i.e., the murderer’s identity cannot be obtained) separately, if you want.
Question #2: The assumption is that suspicious deaths occur within an industry, meetings are called, and resources are pooled to investigate, identify, and apprehend the murderer(s). The assumption is that they catch the murderer — one of their own, as it turns out — dead to rights. The assumption is that they kill the murderer, and make it well known that all such would-be murderers in their industry would meet the same fate. Wouldn’t this serve as a deterrent to others?
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Origin of Question #3
AnCap: People boycott businesses over far less than murder – wouldn’t people find a way to make do without the goods/services in protest, putting the firm out of business?
AnCom: The norms of the market would have to hold these violences wrong for boycotting to work. For example, plenty of firms today do kill people and there is no organized boycott affecting their business in a meaningful way.
AnCap: We’re not discussing firms killing people as a general concept – we’re talking about firms specifically murdering competitors.
AnCom: Exactly. Chiquita literally murdered their competitors, and they have not been meaningfully impeded by the consumers.
AnCap: Chiquita murdered their competitors with the aid of the State. Give me access to Marines and I can do a lot of stuff that I can’t do without them.
Reading it again, my question was pretty far off from what I should have asked, my bad, let me rephrase entirely:
Question #3: Wouldn’t it be a bad business strategy from a profitability viewpoint to murder competitors if for no other reason than because if it ever came to light what they did, people would likely switch brands (if there were any left to choose from) and/or start new firms to compete (with better arms and defenses than the dearly departed predecessors)?
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Origin of Question #4
AnCap: Why would lower priced goods be something to be avoided?
AnCom: Lower priced goods are fine. I meant ‘predatory pricing’, i.e., the business practice by which a [firm seeking a monopoly] operates at a loss for a short time to keep their prices artificially low whenever a competitor tries to enter the market until the competitor goes out of business, and then prices are jacked back up to exorbitantly high levels. Sure, for a short time consumers enjoy low prices, but that is only temporary — long term, they are still losing out overall since they are generally paying exorbitantly high prices.
AnCap: Can you give me an example of where this strategy has proven to be effective and/or profitable for a business?
AnCom: No, at least not off the top of my head. I did a quick Google search, but was unable to come up with an example. I did find an article that suggests that that may be because it’s currently illegal in most western countries: https://books.google.com/books?id=bot3MOPlxzMC&q=undercut#v=snippet&q=undercut&f=false
That said, the Wikipedia article for “predatory pricing” backs this theory up, and, additionally, provides some examples of alleged instances – mostly accused are WalMart and Amazon. Is this proof of profitability? No. That said, like, if walmart’s doing it… I’d assume that there’s a reason?
AnCap: My reading of the Wikipedia article is shockingly different from yours. I’ve read it a few times now and I’m not sure how our understanding could be so different?
Your contention is that predatory pricing is a ‘way’ of ‘eliminating competition’.
But the article opens by saying ‘Predatory pricing is a risky and dubious pricing strategy…’
The opening goes on to point out that it’s not really clear how you would even determine if the pricing was deliberately ‘predatory’ or not (and when you stop and think about it, that is kinda tough to determine, right?).
It says predatory pricing is ‘intending to drive competitors out’ (’theoretically… may… hopes…’). But your claim isn’t about intentions — it’s whether or not this is an effective tactic for eliminating competition.
The article lists several prerequisite conditions for both the firm seeking to use this tactic, as well as its industry. Without these conditions having been met, the article argues that predatory pricing isn’t plausible even in theory (!). One prerequisite is an accurate assessment of competitors’ strengths. This prerequisite alone makes ‘predatory pricing’ impossible, as it assumes what you might call ‘perfect information transfer networks’ (!). Another prerequisite is the one we discussed earlier — a market observer could wait until the price war had eliminated the competitors, and then, when the new monopoly holder raises prices (and it must, as it’s reserves are surely depleted) the new entrant into the market can then charge normal prices and successfully out compete the monopolist from day one. Furthermore the would-be monopolist must already have considerable strength and position in the market to even attempt it (so why would they even attempt it if a prerequisite is that they are already doing quite well for themselves? What would be the ‘incentive’ to take such a huge risk?). It also says there must be ‘substantial barriers to entry’ — there’s no detail given, but what substantial barriers could possibly exist in a Stateless society that would even come close to equating the barriers the State imposes?
The article mentions a version of predatory pricing known as ‘dumping’ but condemns in it in the same breath, explaining why it’s a dangerous move.
The criticism section points out there’s only been one legal case of it in the US — it’s just not something businesses ever try. Sure, the laws probably prevent a lot of it, but the fact that no one even tries it? Hmmm…
The article then (shockingly) quotes Sowell at length. I’m sure you read it but I’m copy/pasting here for emphasis:
“Obviously, predatory pricing pays off only if the surviving predator can then raise prices enough to recover the previous losses, making enough extra profit thereafter to justify the risks. These risks are not small.
However, even the demise of a competitor does not leave the survivor home free. Bankruptcy does not by itself destroy the fallen competitor’s physical plant or the people whose skills made it a viable business. Both may be available-perhaps at distress prices-to others who can spring up to take the defunct firm’s place.
The Washington Post went bankrupt in 1933, though not because of predatory pricing. But neither its physical plant, its people, or its name disappeared into thin air. Instead, publisher Eugene Meyer acquired all three-at a fraction of what he had bid unsuccessfully for the same newspaper just four years earlier. In the course of time, the Post became the biggest newspaper in Washington.
And where would we be without WaPo?? (Ha!)
The article then gives yet two more (pretty funny) examples of how attempts at monopoly have failed. (In one example, the would-be monopolist wasn’t a ‘capitalist’, it was a State actor. The other was a ‘price war’ between two capitalists that backfired, with the net result being lower priced goods for all.)
As for the ‘instances’ of predatory pricing mentioned in the article:
Example #1: Wanadoo is 72% owned by French government, so it’s not an example of a firm lowering prices to drive out competition, it’s an example of State action.
Example #2: The citation link is broken, so all we know is that the State forced a firm to raise the price of birth control from $9 to $26. With no other info to go on, I don’t see how this is evidence that predatory pricing eliminates competition? (It’s just evidence of the State making birth control more difficult to get, something I would think leftists would be upset about?)
Example #3: The German government forced Walmart to raise prices on staple food items.
‘’’The benefit to consumers is marginal and temporary, while the damage to competition through illegal obstruction of small and medium-sized companies is lasting and significant,’ said Ulf Boge, director of the cartel office.”
Interesting, the State is making the same claim you are making. But where is the evidence?
‘…government officials asserted that the price wars were little more than a series of tricks to lure customers from one store to another with temporary bargains that would soon disappear.’
Another repeat of the claim from your friend the State – but… Where is the evidence?
‘Despite widespread unhappiness among many [workers], federal laws still prohibit most stores from staying open past 8 p.m. on weekdays or opening at all on Sundays. Despite years of popular complaints [from the workers] about the restrictions… Chancellor Gerhard Schroder dismissed proposals just last week that would have liberalized the rules. Indeed, stores in most smaller towns do not even stay open as long as they are allowed under current rules. Instead, [State-protected capitalists] in scores of communities have banded together and, like mini-cartels, reached an agreement among themselves to close at 6 p.m. on weekdays and 2 p.m. on Saturdays.’
The State entity responsible for fighting cartels has created a cartel. Hm. A cartel that results in ‘widespread unhappiness’ among the workers, the very people you claim to be fighting for, no less. Interesting.
‘This was the first [and unsurprisingly the only] time German authorities had concluded that retailers were selling products below their own purchase costs… The cartel office opened investigations of several other big retailers earlier this year, but dropped the cases after deciding the reductions were justified.’
That is: the State only found this one instance of ‘predatory pricing’ and no others. Why is that? Perhaps the claim that ‘undercutting competitors to drive them out of business so you can later raise prices and recoup your losses’ is not an effective strategy at all?
Example #4: The claim is that Amazon’s ‘free shipping’ in France is ‘predatory pricing’.
“’Once they are in a dominant position and will have crushed our network of bookshops, they will [begin charging for shipping],’ she forecast last year.”
This is the claim repeated yet again by your intellectual comrade on the issue, i.e., the State, but, yet again, no evidence is presented. (Anywhere in the article.) Amazon would need to start charging for shipping for it to be evidence, and it’s been 4+ year since her prediction and it has not come true yet. How long till we acknowledge she was mistaken?
Example #5: A State-run bus company was forced for the first time to compete with a privately owned bus company, and failed miserably. There is no evidence of predatory pricing presented whatsoever. (It’s a fascinating story though, I kinda got sucked into it…)
As for the ‘article’ you offered that suggests the reason you can’t find an example is the pervasiveness of the State:
I’m fine with the argument itself, i.e., yeah, the State has left pretty much nothing untouched, so the request to show an example of anything non-State-related is pretty impossible. But I don’t require examples per se, I’m just looking for evidence of any kind that your claim that predatory pricing is a way of eliminating competition.
I’m not convinced it is a realistic option for getting rid of competition. Wikipedia isn’t convinced it is, either. Google isn’t convinced it is…
Even this ‘article’ you cite is not convinced predatory pricing is effective: it’s a book that covers the management of newspapers ‘for the modern era’. The portion referenced is almost exclusively offering advice on how to avoid legal action for violating State laws regarding antitrust legislation. Ironically, in the rare sentences that deviate from the legal advice, it advises against predatory pricing tactics — it makes the case that regardless of antitrust legislation, the newspaper still shouldn’t even try ‘predatory pricing’ even if it was legal, as it’s just bad strategy and unlikely to pay off.
Furthermore, the book — your source — brings up a great point: for a newspaper to ‘eliminate competition’, ultimately, it would have to eliminate all the radio and tv companies, too, not just the competing newspapers. And the movies (and now internet). Newspapers sell an audience’s attention to the highest bidder (the advertisers) — the ‘competition’ for the attention of humans is nearly limitless… No amount of undercutting prices will ever remove the need to compete in many industries.
Question #4: If you can’t find anyone else that is convinced that predatory pricing can actually eliminate competition, what has you so convinced it can?
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