Think you have to do it by sector or make your own calculations.
Profit margins and return on equity would be the relevant numbers.
If you are looking at a long time period the industry indexes should be sufficient. If there is higher then average profits in one industry it will attract investment and the industry index should rise faster then all other.
But this will not tell you anything of any scientific importaince what so ever. There are to many errors and too many variable to draw any sensible from conclutions but it could still be usefull in some sort of entprenurial trial and error guesswork i guess…
Regarding why monopolies and cartels are bad. They can be bad because they choke competition. Lower competition means higher prices and worse quality of product/service.
Here is an article about the cartel of Israeli cellular operators. I am Israeli myself and at least according to my experience this article is correct.
Now don’t get me wrong, I hold austrian position on most things, but I’m not sure whether the government should be idle in the face of price fixing and cartels.
Do you not see that this is just an argument thats anti-capitalistic. In that it condemns highly efficient firms? How much competition should be allowed? Wen is there too little, when is there not enough? Who will be the central authority to answer such questions correctly? How is it even humanely possible to answer such questions? Perhaps the monopolist is at the top because he is the most efficient producer. Forcing him to share the market with less efficient firms will result a general rise in prices and drop in quality of goods.
Keeping competition at bay simply because you are the most efficient is not bad. What you’ve done is changed the argument from:
Monopoly’s are bad just because.
to
We need competition at all costs!
Forced competition is just as counter-economical as forced monopolies. Do you understand how your position could easily be abused to dismantel extremely productive enterprises?
If he’s talking about monopoly as privilege, he is right, if he is talking about monopoly as sole producer of a good, he is not, for reasons I outlined (but were ignored) in my post on the previous page of this thread.
Every good/service is unique, even if it is made by the same process or ingredients as thousands of others. All products are heterogenuous at the margin.
How is this not a double standard? How do you know that the government is dismantling or promoting the right firms? What metric is the government’s performance judged by?
An independent firm would get it’s sponsorship on the market. If it’s judgement is wrong it will be judged by consumers. The government however can make consistent errors, and operate entirely exempt fron consumer scrutiny.
Yes I agree with your statement about every product ultimately being unique. It’s my understanding that Eugene is referring to monopolies that allegedly form naturally on the market, and then proceed to abuse their position(As if possible).
Yes, and the government will definitely make mistakes, but there is no way to know whether to let cartels curtail competition will be more efficient. My guess is that even if the government does make mistakes in some 10% of the time, it will be right 90% of the time and will be able to disband cartels such as the cellular cartel in Israel.
I don’t think we should have competition at all costs and at all times, it does make sense for a very efficient company to have huge profits for a year or two, but I don’t think it makes sense for a group of companies like the cellular operators in Israel to make very big profits for a decade, especially that the prices are so high (when compared to United States for example), and the quality is not so great either.
If this is true, which I believe it is, why do we feel compelled to constantly interrupt the market process? If we cannot possibly know whether we need more competition or less, how are we to address the situation? Guesswork?
Where did you come with this 10% 90% number? My guess is they will get it wrong 100% of the time. As it’s humanely impossible to properly judge such things, unless your omniscient. Also how do you know in which cases they got it correct?
The example you provide is the result of state protectionism. I believe LS or someone else has already pointed this out. Looking at cell phone companies in other countries the profits will appear very different, especially in 3rd world countries. The type of package that consumers get out of cellular devices in 3rd world countries are very different.
But lets pretend state protectionism aside. Why is it wrong for a firm to be efficient for a lengthy period of time? Why is it wrong for society to benefit from their efficiency? What sense does it make to punish a firm that best pleases the consumer?
I guess what I am getting at is your argument against profits and business make no sense. Your essentially fighting against economic growth, fighting against productivity, and fighting against profits. Efficient and profitable firms, even ones that endure lengthy periods of time, are not in and of themselves bad. If a firm bars competitors from entering the market simply due to their efficiency, that is not grounds to dismantel them. For doing so would only bring about a higher cost and lower quality product.
Competition for competition sake can be as destructive as monopoly for monopoly sake. It’s like saying you must have supply or you must have demand. Of course, this is a false dichotomy. The market governs supply and demand just as it governs competition and monopoly. The market can dictate better than government on these issues. There is no reason why a monopoly should not be allowed to profit for as long as it wants if it is producing goods and services the consumer wants at a price lower than any potential competitor (hence, monopoly). If a cartel fails to provide goods and services at a low price, then it would be in the interest of its members to break up and compete against eachother at lower prices. The only reason why the market would fail to function in this manner is if government intervened to “stabilize” prices by forcing competition in the former case or by prohibiting it in the latter.
If the barrier to entering the cellular market would have been zero, I gurantee you that the competition would have been many times harshes, and the prices would have dropped by huge degree. A high barrier for entrance scares a lot of investors. I don’t see any reason why some industries should enjoy very little competition because of the high entrance barriers, and some industries should have harsh competition because of low barriers.
Yes, it is always a guess work, and I definitely do not think the government will be wrong 100% of the time, there is no valid reason to think it will be always wrong, if the public is smart and the government is smart it can be right in the vast majority of times.
Sure it is the susceptible. As filc said, you’re applying a double standard. The state is a cartel, which you claim will protect you from cartels. So you do endorse cartels, as long as they act in what you believe to be your interest.
And here is the shocking news. All cartels are liked by someone, provided they are acting in their supposed interest.
The government cannot do good. That’s #1. #2 is that what you consider a cartel, isn’t really a cartel, which is why you’re not indentifying the government correctly. #3, Merry Christmas.
The state is by definition not a cartel, so I don’t understand your point.
If a third company does enter a competition with a cartel, it might be more profitable for that company to join the cartel rather than fight it. You can’t say for sure which incentive is stronger and when.
I can definitely say from my experience as the customer of the cellular operator “Partner”, that when Partner did enter the cellular market, this market was controlled by a cartel of Pelephone and Cellcom. At first Partner fought the cartel and decreased the prices, but eventually after it captured some market share it decided to join the cartel and increase the prices.
But if anyone can enter the cartel, eventually the benefit of undercutting the cartel will be greater than joining it.
First, the telecom industry is not a good example of a free market. Second, simply because they increase their prices does not mean they are engaging in cartel-type activity. It is perfectly normal for firms to gain market share by lowering their prices and increase them later. The initial lower prices are to establish consumer trust and familiarity with the new company. It is a tool to break cartels.
Eugene:If a third company does enter a competition with a cartel, it might be more profitable for that company to join the cartel rather than fight it. You can’t say for sure which incentive is stronger and when.
So what? If one particular industry that doesn’t have government protection is generating higher profits then average it is because that industry is producing stuff people are willing to pay more for for less.
It doesn’t matter if there is a cartel or not. If they do this they are more effecient then the average company and there additional profits and effeciency will spill-over and benefit the entire economy.
This is only a problem if they can allow there effeciency to drop because of the cartel situation which is only possible if the government is protecting them. The barriers to entry are much higher in every industry then they have to be because of government and in industries where ineffecient cartels can be suspected we also find the most government regulation …
The standard depiction of competition seems all wrong. It is not cars vs. cars, phones vs. phones. Every seller competes with every other seller. Which means that restriction of entry into any type of good is monopoly behaviour by the person restricting it regardless of what type of good he is selling.
Suppose that you and I go to China to sell some snazzy new western products. You sell cars and I sell phones. If only you went you would be able to sell more cars at best than if I also go and create the possibility of some Chinese wages being spent on phones. So, you have an interest in restricting the sale of my phones.