pull down to refresh
100 sats \ 10 replies \ @Undisciplined 19h \ on: Free market competition - good and bad econ
Predatory pricing is essentially a myth. There are almost no real world examples of it happening, which casts doubt on how good of a strategy it is. What happens, in an actual market environment, is a speculator with a ton of capital buys up all the below cost product until the producer stops and then they sell it at the normal market price. It's a basic arbitrage play. Alternatively, the competitors can just suspend operations and wait the under-cost producer out.
Almost all of the supposed problems with market competition that I've ever heard are either self-correcting through normal market processes or better than regulatory solution.
You may be interested to read or listen to some of Tom DiLorenzo's work on the subject. I think he covers this in How Capitalism Saved America.
Speculators can't do that with services.
reply
They can't do the resell arbitrage, but they can do the second strategy of letting their competitor eat those losses until they can't sustain it anymore.
More broadly, there are winning competitive strategies to take when your opponent is opting for a losing strategy.
DiLorenzo has gone back through the historical records and every supposed instance of predatory pricing was bs. Most of the time, it was just an entrepreneur lowering prices permanently and when it was the actual goal it blew up in the person's face.
reply
This would work in cases where there are low fixed costs. Unfortunately this is not always the case. Usually there is rent to pay, maintenance of machines, which is needed even if the machine is idle, also salaries of employees, especially where you can't quickly hire all the workforce at once should you want to resume the operations.
reply
Credit markets can handle some of that. You still won't be sustaining as many losses as the competitor who is intentionally sustaining losses, in addition to the factors you mention.
There's a reason successful cases don't show up in the historical record. Predatory pricing is just a commie boogey man.
reply
I think that will depend on the size difference. A large conglomerate can get into a niche with many smaller players. It can operate a few years losing money on that particular thing. And even though it is sustaining more losses than the competitor, the competitor may be limited even by the smaller losses he is sustaining.
reply
Again, this doesn't exist in the historical record for a reason. It's not a plausible strategy.
If it is as easy as people make it sound, why isn't it common? Every business has competitors and none are documented to have pulled this off.
reply
I am not sure whether it is common or not. I am just using logical deduction here.
I see quite a few actually (current, not historical), but I don't want to delude the discussion with concrete example. Concrete examples are usually complex, and different sides always interpret them in a way that supports their case.
reply
In that case, I've said my piece.
In a theoretical sense, it isn't plausible for reasons I've already stated.
In an empirical sense, it doesn't seem to happen, although I grant your point about real cases being messy.