If by definition both parties benefit from an exchange, then could someone please explain to me why an exchange would ever be completed at a “predatory price” (whatever that means - it sounds scary so I’m assuming it’s bad) on the free market?
Or are we talking about a 3rd party, not involved in the exchange, arbitrarily deciding that the price paid is “predatory”? So are we assuming that the parties to the exchange are too stupid or indifferent to see this for themselves?
Dude are you nuts??. What violence??? Stop your intellectual dramatic position.
The violence where you step in between A and B making a mutually agreeable exchange. Are you denying that is violent?
You antisocial behavior blinds you. Even more when you have a whole ideal backing up every single anarchist thought of yours like an extremist religion. Very good.
But see I am not that violent, even if you were standing in front of me I would not lock you in a psych hospital.
Take care.
E. R. Olovetto wrote the following post at Tue, Jun 29 2010 1:06 PM:
Dude are you nuts??. What violence??? Stop your intellectual dramatic position.
The violence where you step in between A and B making a mutually agreeable exchange. Are you denying that is violent?
the whole theory of predatory pricing is a bit ridiculous. What is going to stop new competitors from popping up once you raise prices again after knocking out the competition? And if your selling at such a predatory price, your competitors are going to buy up all of your product and run YOU out of business, or they will simply slow down or stop operations until it becomes profitable to operate again.
Rothbard has some audio lectures out there on this topic on the site
There are a lot of creative things you can do. Even if company A can offer below market prices now, and then jack them up in the future, company B can offer a contract to provide the good at a stable price for long periods of time. Consumers like locked in rates. So do insurance companies.
“the whole theory of predatory pricing is a bit ridiculous”
Agreed. “Ooh, I’m a big mean predatory pricer! Watch me sell my stock of goods at a loss. Mwuhahaha! You’ll be blinded by all the red ink!!!”
You antisocial behavior blinds you. Even more when you have a whole ideal backing up every single anarchist thought of yours like an extremist religion. Very good.
But see I am not that violent, even if you were standing in front of me I would not lock you in a psych hospital.
Take care.
You didn’t answer the question. Do you view interfering in voluntary exchange as using violence or not? Moreover, on what grounds do you justify the use of violence? So far all I have seen you say is that you think markets need to be regulated, but haven’t backed it up with any justification.
I’m sorry if I offended you somehow, however I don’t see what is particularly radical about anything I said. Please explain.
How? The issue isn’t predatory pricing by itself - certainly a period of lower prices is good for the consumer, not bad. It’s like a wealth transfer from the firm to the consumer. The issue is that, allegedly, a firm utilizing a predatory pricing strategy can then charge monopoly prices after its competitors are defeated. Unfortunately for the predatory firm the math doesn’t work out in their favor. If they have competitors today at $2.00 per widget, selling for $1.00 per widget to drive them out of business may work, but raising the price back to even $2.00 per widget will see the original level of competition at that price return. Raising it higher to reap the monopoly reward will result in even more competion appearing, driving the price back down.
As far as I can tell, predatory pricing schemes only appear viable if you assume no countering or compensating action on the part of consumers, current competitors, or (perhaps most importantly) potential future competitors.
This and other considerations are explained further in Tom DiLorenzo’s The Myth of Predatory Pricing.
If I understand correctly, this forum is intended to be a place of learning and scholarship. Ideas are posted here with the expectation that they will be picked over for inconsistencies in an attempt to prove them right or wrong. Not as an on assault on the idea or the presenter, but as a method of learning. It’s perfectly reasonable to make any sort of assertion here, however one must also expect to support it if they want to both continue to espouse the idea and be intellectually honest. It would be intolerant to keep you from ever presenting your idea. It is not intolerant to reject ideas that have no proof.
But if E.R. Olovetto and I were standing in front of you engaging in a trade agreeable to the both of us that you deemed to be predatory you would have us both fined, put in jail if we resisted the fine, and hurt or killed if we resisted the incarceration. Perhaps you don’t want to be violent, but the policy you are supporting requires it.
I have a friend that I have been unable to disabuse of the notion of predatory pricing leading to harmful monopolies on a free market. It is a major stumbling block in our discussions, because I pitch pretty much everything in terms of free markets vs monopolies, so we are at a stalemate as he think monopolies are a free market phenomenon.
The example he always gives is as follows: bus company A used to charge £5 for a bus ride from A to B (his home town). Then a bus company B started up and did the same route charging £4. In response, bus company A started letting everyone ride the bus for free. This lasted for a few weeks and then bus company B folded. Then bus company A went back to charging £5, and it remains this way to this day.
Now, conveniently for him, I have no links or any way to verify if this is even a true story. He loved riding the bus for free for a few weeks, but says that the free market fails because £4 is evidently enough to be profitable, so having to pay £5 is a market failure. (To his credit, he does not think that government should intervene in any way, because of unintended consequences, but he says that I am wrong to dismiss predatory pricing as an important market technique that firms use to eliminate competitors.)
I’ve attacked this from various angles, but to no avail. When I ask him why he thinks another company doesn’t pop up and charge £5, he says that no one will risk having the same predatory pricing technique used to push them out of business. One of the things he emphasizes, by the way, is the amount of time and capital involved in building buses versus building widgets. He accepts that predatory pricing doesn’t work as a strategy in the widget industry, but maintains that it is a problem in industries where there are high start-up costs, like transport.
Company B can simply offer a bus pass to its customers. The bus pass would be valid for a long time, longer than any company could let customers ride for free.
So he’s speculating that company A is making the big bucks. Ask him to prove this. It may just have been a bad market. Company B might have been selling below market price anyway at 4 pounds.
Regardless, this example sounds really made up. It would have to be a long bus ride to charge 4-5 pounds for. Also, when companies engage in aggressive price cutting, they typically don’t go down to 0.
… a bus costs like, what, 50,000 bucks? This is nothing. New companies were started all the time in very competitive, ‘high entry cost’ industries before antitrust laws.
You get a bunch of investors. They have a lot of money. They will sponser entrepreneurs to compete. They will fund them when the company isn’t making any money. The idea is that if something makes money in the long term, it gets done. It must have been a really flaky bunch of guys who quit after a few weeks of obviously unsustainable pricing by competitors. Just have your buses in the lot and drivers on call, and if you get word that company A goes back above a certain price, drive out and enter the market!
Very few businesses rely on making money right as soon as their infrastructure is completed… those that do can secure clients before building the capital. For example, natural gas pipelines. Kinder Morgan’s interstate CO2 pipeline had astronomical cost, but was built after contracting price/service arrangements.
A company’s capital need to be constantly replaced. In order to attract investment, a company must be able to offer close to the going rate of profit. In the case of Bus Company A, that includes averaging in the time when they’re charging $0 and bleeding funds. If they are not able to, over time, generate a profit greater than the going rate they will fail to attract investment. If that happens, they will be unable to replace their capital as fast as it wears out.
Also, if giving free bus rides is giving Company A an advantage, then wouldn’t it follow that Company B could actually pay riders to ride their bus, and gain an even greater advantage?
You are all doing a wonderful job demonstrating logically how predatory price-cutting and other methods for attempting to establish a harmful monopoly are doomed to failure on the free market. The next step in convincing opponents of the free market is to give empirical examples to illustrate your case. Rothbard has scores of such illustrations in his lectures on American economic history and his “intro to microeconomics” lectures on the firm, monopoly, and competition.
trulib,
Does your friend live in the Darlington area?
http://en.wikipedia.org/wiki/Darlington_Bus_War
In this case, the free rides were offered because the government agent in charge of allowing bus companies to start their routes wouldn’t let Stagecoach start early, so they had to offer free rides to even run their buses.
cporter,
He doesn’t; he lives in Stafford. But that article is pretty much exactly what he’s talking about - thanks for digging that up. It would be interesting to know what prices were like before Busways came on the scene, compared to what they were after the collapse of DTC.
This is an amazing quote by the way:
Basically, Busways were just too good and its sickening. Unbelievable.