Daniel, that youtube with Ron P. on anti-trust and monopolies, was interesting. What was also interesting is that sounded like a regular program. The host said tune-in in two weeks for another conversation with Ron P. People have been asleep for so long…[:(]
I talked to an old man yesterday all about the Federal Reserve, natural property, how the two-parties are corrupt in the U.S., and government regulation and intervention. The conversation started when we were looking at a Model-T and how it is only permitted to drive on the roads during the day. I said that doesn’t make sense cause it has headlights, but then I said of course the government regulates all kinds of goofy stuff. He agreed. I talked about how cars have to go through all kinds of government regulations now a days just to get in the market to be sold. He was saying, “Yeah, look at me I’m 69 and the government is trying to tell me, a 69 year old how what I can and can’t do. I’ve been on this earth for 69 years and I’ve made it. I’ve lived. I have an idea on what to do without causing harm to myself or others. I’ve done it for 69 years of my life.” So true I told him. He knows what to do way more than the government. He has 69 years to prove it. Of course people make mistakes, but he has 69 years of wisdom to guide him, “Meanwhile the government thinks we’re all a bunch of dummies,” that’s what the old man told me. And I add the government isn’t only thinking we’re dummies, the government is making dummies. The old adage known as the “Dummying down of America”.
I see no reason for this scenario to exist in a world without copyrights. Without copyrights, someone else could copy one of the CDs, and sell them for $19 each. Then the company that originally produced them would have to drop the price. Eventually the price would drop to around $5 would be my guess. As you can see, the profit per CD with a monopoly is $15 more than without the monopoly. As to file-sharing, you are correct that it would just reduce the number of CDs sold.
Well, your profit per unit is higher. Not only that, but because you have a monopoly, you get to sell all the units of whatever it is that you have a monopoly on, so your overall profit will always be higher as well.
Take music for example. If I have a monopoly on a CD, I might be able to sell that CD for $20 each, at a profit of $10 per CD (for the sake of ease of math), and I can sell 1000 CDs at that price. That is a profit of $10,000. But, if I do not have a monopoly on the CD, let’s say that the profit per CD drops to $1. But now the market will purchase 10000 CDs. That is still a profit of $10,000. But since I do not have a monopoly on the market, I only get 1/10th of the market share, meaning I only sell 1000 CDs still, and my profit ends up being just $1000. Both profit per CD and overall profit dropped. A monopoly will always get you more profit than not having the monopoly.
I do not disagree with this statement, per se. For example, if we lived in a free society, without copyrights, patents, or any monopolies, and if the law was kept to only punishing people for harming or stealing the person or property of other people, then I think by now we would probably be a hundred times wealthier than we are today. We would probably have far greater advances in technology than we have today. It is like asking, would you rather have a monopoly on growing bananas, and be living in 1805, or just be middle class, and live in 2009? Sure, you might have more money, but would you really be “wealthier” by having the monopoly and living in 1805?
We weren’t talking about a world without copyrights.
He said: Piracy can actually lead to increased profits
You said: monopolies always lead to higher profits, so that must be wrong.
I gave an example of how it is theoretically possible that piracy might increase profits.
The situation is confused because it is not a simple case of monopoly vs competition. Thats why things like copyright make it more complicated then it seems.
Again, I agree that monopolies generally lead to increased profits, and I suppose that they always provide the potential for highest profits. But the case of music / piracy is different because it isnt a matter of either monopoly or competition. The only thing I was arguing is that it is possible that piracy could increase profits of record labels by expanding the market, if more people buy the cds after hearing it for free than people dont buy the cds because they can get it for free. Its more complicated because some people will go and buy the cd because they want to support the band, or they want the actual album cover, etc. The downloaded file and the actual CD are not exactly the same. It is basically the equivilent of a company giving out free samples.
I don’t know if that is clear, but I cant think of a better way to explain it.
Let me give my example as to why your profit nor your revenue would not be necessarily higher if you have a monopoly.
Say there is no monopoly on gasoline. So each gallon is $4, with total costs of $3, and you can sell 1,000,000 gallons at that price. Therefore, your revenue is $4,000,000 and your profit is $1,000,000.
However, say you have a monopoly and you raise the price of gasoline to $1,000,000. Who in there right mind would buy a gallon of gasoline at that price? Would people switch to alternatives? Would people switch to ethanol? To hybrids? To electric cars? To government transportation? To walking? Bike riding? Hell, you could buy 10 Tesla Motors roadsters for $100,000 for about the same price.
No one, which is why if you have a monopoly on gasoline, you would not charge $1 million. Instead, you would raise it to $5, make $2 profit on each gallon, and sell 900,000 gallons instead. Now you make $1,800,000. Businesses do calculations all the time trying to figure out the most they can sell at what highest price. If you have a monopoly, you can sell fewer at a higher price and make more money.
But again, would one rather have a monopoly and live in 1800 or be middle class and live in the present? Monopolies retard innovation.
Why couldn’t another company supply the other 100,000 gallons for a cheaper price; in fact, the new competitor would take more of the market, because more people would opt for its cheaper prices.
Because you have a monopoly. You are the only one that can sell gasoline. Others can resell it, but to sell it for less would be at a loss, so they would not sell it for less than what they paid for it.
This would only work in a monopoly created through “law”, otherwise there is nothing that says that you are the only company able to sell gasoline or any other product. The scenario, other than a government protected cartel, is impossible.
Well then, I think this thread is one giant misunderstanding. Of course cartels increase profits for businesses that make up the cartel; otherwise, nobody would lobby government to subsidize them or give them special privilages. But, I don’t think it’s more profitable for businesses that are well off, as opposed to businesses that wouldn’t be able to survive in a free-market, because they can’t compete.
Monopolies are also at a disadvantage in some ways. Consider a situation that some how an entrant to the market appears. What are the possible courses of action? I can only think of two.
Price them out of business (lowing the price).
Buy them out.
With #1, the problem with such a situation is that “predatory pricing” is an oxymoron. When one takes that position one is losing money that one could have used to invest in the future production (and possibly savings?) regarding the business. So, even if the initial drop in price is successful at fending off an entrant which didn’t have a sound finincial backing or lacked devoted focus to the target market, other possible entrants that come along may leverage the advantages of being a entrant (lower cost of operator versus possible gains from each gain in market share, and the subjective quality of being able to differentiate themselves from the monopoly company in reputation among possible customers). As such, predatory pricing itself isn’t the best tactic as it can even signal to other potential entrants the market is prime ready for new blood (Considering if a company with monopoly position suddenly starts to price to levels where it hurts its bottom line, then all entrants would have to do is price just above or at the same level if they can structure their business with lower costs lower than the total revenue generated by that given price scheme), thus they may enter the fray win/lose, thus multiplying the monopoly company’s potential targets of the pricing scheme.
With #2, this isn’t such a problem at least as I’ve seen in the software development industries (games, DBMS, and OS development). Sometimes the entrant is worth the price of purchase, they may have new talent or a better process. But doing so is still a gamble. One may buy up a company that’s rotten to the core (a full blown scam) or that the product/service itself as provided by the company wasn’t worth the given price. So, I haven’t seen it used effectively as a tactic to fend off entrants in the software industries, but I suspect it can be under the right conditions. Either way, it too can be seen as a signal that a market is ripe for new blood to other potential entrants, thus again adding to the possibility of multiplying opponents for the monopoly company.
All in all, monopolies to me seem not easily gained or kept, they seem to be historically largely based on legal constructs for their existence, and those that exist naturally only do so because of the fact of natural scarcity of their product/service (like mining operations in coal or some other resource, or physical natural monopolies of transportation like railways). And even these still have the slight possibility of multiplying entrants so long as there’s some resource left untouched or some region left underserviced.
Competition spurs innovation - for both the final product and the production process, which would increase the total market demand and decrease the cost of production, respectively. This can lead to greater profits from a share of the market than those brought in from the monopoly.
This is theoretically improbable. Let’s say a product costs $10 to produce and you can sell it for $20 if you have a monopoly. And let’s say at that price, you can sell 1000 units. At $10 profits, that is 10,000 dollars. Now, let’s say you lose your monopoly, so now you have competition. Let’s say competition reduces the product cost to $5. And since there is competition, you have to reduce your price to $6 per unit. So now, in order to make as much money as you were before, you have to sell 10,000 units, ten times more than you had to before. Not only that, you do not have a monopoly anymore. So the market would have to be able to bear more than 10,000 units.
I will stick by my claim that a monopoly always gets you more money. Now, make sure you understand this is not the same as saying a monopoly will always garner you more wealth.
Of course cartels increase profits for businesses that make up the cartel; otherwise, nobody would lobby government to subsidize them or give them special privilages. But, I don’t think it’s more profitable for businesses that are well off, as opposed to businesses that wouldn’t be able to survive in a free-market, because they can’t compete.