I don’t think most of you understand why I think this is a problem. Because yes the high start up costs do prevent competion as it is so difficult for any other firm to compete with them, because they have to have to pay the high start up costs, and then they would face price competion from the established firm. Therefore they will often choose not to challenge the monopoly on the market. The monopoly on the market could set the prices very high, and since the elasticity of demand for the consumers is low, they could make really high profits and consumers would pay way too much I think. I can’t really understand how you guys do not agree with me that high start up costs leads to less competition, which leads to higher prices at the expense of the consumers.
So my solution is not that government should determine the optimal price, but just set a limit for how high price they are allowed to charge (this could be based on the prices in areas with more competition in the road-market). Do not misunderstand me, as I think there is no problem when the monopoly has conquered the market by producing at lower costs, since this would be better for the consumers (if this monopoly started charing too high, other competitors could challenge them more easily if start up costs were low).
And btw. I did not know what I was thinking when I said that there would be tailbacks on the private market. Obivious error from me.
We do. You keep ignoring our criticism of your position.
That’s fine. That means the market is being provided for as efficiently as possible. That’s the market working.
But if the prices are too high, there is too much profit, someone else will compete. Again, a market solution to high prices.
Because you are wrong. Where there is potential profit, people will invest for returns. Accumulating start up capital where there is profit to be made is easy.
Government cannot set prices because prices are not static. A ceiling is the same thing as a floor. It limits any natural variance from market activity.
Government planners cannot determine the correct price. That is up to the supplier and the customer.
I think first you need to understand how prices are created in a market. How it takes a buyer and a seller to agree on a price.
There is no reason for the government to get involved.
I don’t think you’re grasping what we’re implying in our criticism.
This may be true, but you’ve neglected to realize what a high start up cost implies: risk of investment. Greater entrapeneurial risk naturally implies less firms entering the market, but if profits (returns on risk) are so great that they extend beyond the risk involved in investing in a road, people will begin to invest in the road market.
So, if in your scenario, a road company is charging obscenely high prices, the return on risk to invest in a road is greater, since undercutting competition still yields profits.
I linked to an essay by Ludwig von Mises on price control, i suggest you read it.
Less competitors is not necessarily a bad thing. Anyone is still (legally) free to enter the market, so theoretically, competition itself is infinite. Whether 3, 4, 5, 17, 99, or 1 road-service suppliers would be best is an open question which can only be answered by a free market process. 5 competitors is not necessarily better than 3; it may be the case that 3 can supply the needs adequately and the resources that would have been invested in the other 2 can be better invested in fulfilling some totally different need, like Dairy Queens or technological research or roadside rest stops.
If more competitors in the road industry is assumed to be a good thing, then the best thing possible for us would be for everybody in the country to quit their job and become a road owner. Obviously it is preferable to have less road suppliers than that. How do you find out how many is optimal? The free market, with its profit and loss system.
As others said, the high startup costs represent risk. They motivate people who are less sure about their ability to provide a good (profitable) road to consider doing something else. That is a good thing! “We” need those people allocated to doing something else.
Also, those high startup costs are not necessarily constant. They motivate entrepreneurs to come up with ways to reduce the costs, perhaps by innovating new road surfaces, or perhaps by innovating new business methods for funding roads, or perhaps by innovating new legal instruments for purchasing the land involved in constructing private roads. We need that innovative activity! Your alternative will just pressure us into doing it the same way forever, with no innovation.
With entrepreneurs free to attempt to reduce their startup costs, road users will see their costs decrease. Furthermore, there will be an incentive for entrepreneurs to innovate substitutes: private plane flight service, for example. “We” might not need anywhere near the number of roads we have now in “our” present subsidized and regulated system; if we would unsubsidize it and deregulate it, we would find out, and whatever we had would be a guaranteed net gain for us, all other things being equal.