This is not necessarily a “help me!” thread as it is a “what do you think about this?” thread.
On a forum I visit, there’s this one guy that seems very vested in making claims that make me shake my head. For instance:
“Except that in capitalism, companies can grow until they reach a critical mass where they’re in a position to block any competition and stay aloft while releasing inferior products. Not to mention that these companies can actually dictate the flow of culture within a country.”
The quote comes from a thread on the “morality of profit” started on the forum. Overal the thread was going well. I even saw the usual statists on the forum speaking in favor of profit. However, the guy that posted the above selection ruined it.
So, in order for me to have a better understanding of what he’s talking about (before replying to him), I want to know what you all think. He has a habit of posting similar thoughts.
Economies of scale only go so far. But where it may be the case that a handful of companies are so good at producing a good, such that it is not feasible for anyone else to enter that industry and compete, this should not be seen as some kind of failure. It means the few companies that exist are making the good efficiently. If it is unprofitable for a new company to enter the industry, that means it is not worth the opportunity cost; it would be preferable for the would-be competitor to make something else. Competition is not valuable in and of itself; it is valuable because it encourages producers to find more economical ways to produce a good and/or increase the quality of a good. If companies are already making products as well as they can be made and at as low a cost as possible, then additional competitors aren’t really necessary.
Of course, if established companies start slacking off, releasing inferior products, then starting a new company to compete with them looks more attractive. There may very well be a limit here - so long as the established companies don’t make their products too crappy, then it might still be unprofitable for a new competitor to emerge, establish a name, etc. I don’t think this would happen often or for any substantial length of time, but it’s possible. And even if it does happen, all that means is that, given real world conditions, consumers would rather have some other good than a higher quality/lower cost version of the aforementioned good.
EDIT: Oh, and I don’t get the flow of culture thing. He probably means advertising and ‘picking fads’ and all that crap. Give me a break. Besides, even if it is true, who has the legitimate claim as to how the culture should “flow”?
Although companies may become large enough to have a vested interest and ability to restrict goods/offer inferior, this raises the price/oppertunity for others to join. They then have to keep rushing around buying these mom-and-pops to keep a hold on the industry, and their influence.
An example of this in history was given, not sure if there is a transcript of it, by Murray Rothbard’s 20th Century Economic History [I’m going through iTunes] episode on the Cartels- it goes into several examples where they were not able to keep this up, as people started plants just so the “critical mass” company/monopoly would buy them up.
So what? You cannot call a product “inferior” without referring to an arbitrary value judgement.
It is a simple theorem of economics that people will only purchase an object if they value it more than they value anything else that could be purchased for the same cost. If people buy a thing voluntarily then they like the product by definition. What, exactly, is the problem here?
(Note: In anticipating a possible response, I’m probably giving him too much credit here.)
“People do not value goods in and of themselves. Goods are valued because they are useful for achieving some particular goal. From this perspective a product can be objectively called inferior or superior in how well it services the desired end. Cars are superior to horses for travel by this metric, and objectively so. Yet it was a very long time after the car became available that it replaced the horse, and indeed we see many technologies available today that are vastly superior but instead the inferior products are sold for massive profits. It is undeniable the inferior products are able to meet consumers needs, but the superior products would meet them so much better! Why does the former dominate over the latter?”
Means are scarce. They need to be economized as to meet the most important wants first. The reason the car took time to overtake the horse is because production of the car was far too expensive: The resources could have been better used elsewhere.
Michael J Green: This guy has a tendency to point out that companies hire psychologists and advertisers to understand how people will receive their product so that they can make efforts to, as he calls it, “persuade” consumers to buy their product. It seems underhanded to him.
Thanks for the link, Azure. I asked him to elaborate on his point about advertising and such, as seen in my reply:
Him: “Except that in capitalism, companies can grow until they reach a critical mass where they’re in a position to block any competition and stay aloft while releasing inferior products.”
Me: "In the event that a number of companies become so good at producing what consumers demand, this should not be considered an example of a flaw in the system. They are, as previously stated, efficiently producing what consumers demand. Because this is happening, it may not be profitable (or necessary) for other companies to enter that market. They might enter a more profitable market where goods/services are not being produced as efficiently instead.
But even if there were companies in a given market producing so-called “inferior” goods, then said market may look more profitable and promising to enter. But calling a product “inferior” does not make much sense. People will buy that which they value more than they value something else for the same cost. Whether it is inferior to you is irrelevant, because you do not speak for the varying levels of subjective values in people."
His second point: “Not to mention that these companies can actually dictate the flow of culture within a country.”
Me: “I’ve seen you post about this in the past. Could you elaborate?”
I think in Machinery of Freedom, Friedman mentioned U.S. Steel as a historical example that tried to maintain a monopoly on the Steel industry and eventually failed. The problem is that it doesn’t take into account alternative competition (if a producer of Oreos owns the cookies n’ cream market and charges outrageous prices or the quality becomes crappy, people will buy more Chips Ahoy and Vanilla Wafers in its stead) and one of the posters above was correct that entrepeneuers would start up businesses with the sole purpose of being bought out by the monopoly. Eventually, it puts too much strain on the company and it would be more economically efficient to just compete straight up with the smaller company.
I was thinking especially of companies that block upstarts that use new technologies which would require a different kind of infrastructure. The energy sector is a good example. We could’ve had decent electric cars over a decade ago (which would undeniably have turned into a better product for consumers), but the titan oil companies and car manufacturers stood too much to lose and used various methods to block their development. Another example off the top of my head is the backers of direct current in the 19th century which delayed (using rather extreme methods) the implementation of superior alternating current. Companies can also use misinformation to mislead the public about the quality of their products versus others.
To my second:
Basically I’m talking about the fostering of consumerism and materialism as well as the entry of brand names into everyday speech and media. There was a time (not so long ago) when a people’s culture revolved around certain regional activities or traditions or forms of art. Now it seems that all that matters is stuff or emulating the lifestyle of others. It’s more of a personal grievance than anything else. There’s so much more to life, and it bugs me to see lots of people buy into this extremely commercial lifestyle where others basically tell you what to do.
Ask him to emperically proof this point. It ought to be interesting to see him twitch out of it.
Also point out that we always have a history of capital goods at any given time and that it by no means is ‘efficient’ to just change everything in entirely everytime there is a new invention.
I would also concede that even if all of this were to be true; why would it follow that governments don’t have similar examples? Why focus on ‘market failure’ and not on ‘government failure’? Or doesn’t the government have information, advertising, path dependency, interest problems and so on and so forth?
I have a hard time believing that car manufacturers all over the planet are colluding at suppressing a technology that “would undeniably have turned into a better product for consumers”. Meaning, no single manufacturer in the world would dare challenge the oil industries and start making those cars and become a leader on what would “undeniably” be a very very profitable product.
It comes into my suspicion that either 1- electric cars aren’t that great yet (perhaps because of battery life issues) or 2- the government helps the status-quo by having barriers of entry up, subsidies to the titans, etc.