Just wondering, I often read from socialists about how big companies can gain easily over the competition and turn into monopolies by underpricing. Holding out untill the competition go out of business. Im wondering does the amount of money even matter or is it sound business plan? Has there ever been any examples where the new small company with not as much money gains over the big boys? Perspectives from both a statist society and a free society are welcomed. Thanks.
Predatory Pricing is a myth, as is “price gouging”.
It is unsustainable to sell a good for lower than it costs to produce, and even IF this “evil” company drives out all competitors, there are multiple problems:
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The people who make these arguments imagine a static pool of competitors. If there are 3 grocery stores in a given area, and Company P (Predator), drives out their two competitors, companies A and B… Then begins to charge “predatory pricing”, either companies from other areas/countries can move in, or even companies from completely different fields.
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After the company begins to raise prices very high, even the THREAT of an outside competitor entering the market is enough to keep the price lower.
A few good examples to give is Apple entering the phone market, Microsoft entering the video game market, Google entering the map market.
- Companies A and B can buy as much inventory as they can from Company P (since they are selling below cost), and then sell it for slightly higher. Each product A and B buys drives Company P more into the red. It is again, unsustainable.
I would recommend reading a lot of the Monopoly literature/speeches on the site, since it is closely related, and here are a few links I found quickly while searching around:
http://mises.org/media/1835/A-Libertarian-Gallop-Through-American-History (starts around the 21:30 mark… I would recommend the entire speech though)
When IBM was pretty big in the 1950’s to 1980ish( IBM was so “big” that the United States sued them for violating anti trust in the 1960s, the court case with IBM ended in the 1980s…no joke) and Microsoft was small and boomed, even with IBM as a competitor
Most small businesses lose money for YEARS until they settle into the market. That’s what investors are for: they find a good long-term business opportunity and they fund it in hopes for a good return in the long-run.
This idea of “predatory pricing” is bull. Businesses, even very small businesses (e.g. start-ups with very little funding), can lose money for long periods of time and still stay in business. This makes any attempt at “predatory pricing” a pure fantasy. If one firm decides to “undercut” another with “predatory pricing,” the other firm can just wait it out and tell its investors what’s happening. The firm that does the “undercutting” is hurting its own profits more than the competitor’s, after all, the “undercutter” is attracting demand to a product its losing money on, while the competition keeps prices at profitable levels. At most, the “undercutter” can hope for a short-run increase in market share which will disappear as soon as the “undercutter” raises prices back to normal levels.
I don’t understand this paragraph. Would you be willing to explain a little bit more whats going on? Like why/how does stock price reflect Company P’s product selling price?
Poor wording, I meant to say inventory instead of stock.
Editted my original post.
Human Action. Go read! It’s dense, but it explains things like this thoroughly.
Every company at one point was a small company (relatively small market share).
A question for your socialists: has there ever been an example of company that maintained its dominance for say over 40 years ? I doubt they will find even a single one. The facts on the ground show that new companies arise and old ones continously die, so the hypothesis about the strong getting stronger is based on what exactly ?
Quick and simple answer. Do big companies start out big?
A question for your socialists: has there ever been an example of company that maintained its dominance for say over 40 years ?
The Fed?
Ah, you meant without using guns…