Two roads

[Eugene]

If a company that owns the only road from town A to town B starts to gouge prices, it is likely that another company will build a road from town A to town B in order to win market share from the first company. However the traffic between these two towns is very small, so two roads are redundant. So we have a serious waste of resources here. And even that happens only if the second company will risk to build the second road.

So there are two options. Either we have two roads, when one of them is superflous, or we have one road with very high prices. None of these options seem good for the economy.

What I am missing here?

[SirThinkALot]

The second road isnt really a waste if the company can make a profit off of it. Besides even the threat of another company coming in with a second road will keep the first road owner from jacking prices too high.

And if somehow they DID jack prices up to ridiculous levels, with no second road being built, people will stop using roads and buy ATV’s to get around in…

[cporter]

What you call “superfluous” provision of products is what we call “competition” and is a critical part of the free market. Superfluous is not an appropriate term because isn’t unnecessary at all

[Eugene]

And if somehow they DID jack prices up to ridiculous levels, with no second road being built, people will stop using roads and buy ATV’s to get around in…[/quote

You don’t seriously suggest people will start buying ATV’s? That’s A LOT of money. Most chances they will just relocate to a town where no single company controlls such an important resource as a road to the town.

[Hard_Rain]

Under your hypothetical scenario there’s no telling what people would do, but they definitely won’t be happy being ripped-off for long.

[DanielMuffinburg]

@Eugene

If a company that owns the only road from town A to town B starts to gouge prices,

What if the road owner wants to raise funds to improve the road by raising the price?

it is likely that another company will build a road from town A to town B in order to win market share from the first company. However the traffic between these two towns is very small, so two roads are redundant. So we have a serious waste of resources here.

Why is it a waste of resources? Isn’t the second road filling a need in the marketplace?

And even that happens only if the second company will risk to build the second road.

Doesn’t all human action consider risk?

So there are two options. Either we have two roads, when one of them is superflous, or we have one road with very high prices. None of these options seem good for the economy.

What does it mean for something to be good for the economy?

[SirThinkALot]

^^They could do that too…Although ATVs aret that expensive, actually they’re cheaper than cars.

In any case, I was half-joking, but the point is that the market can provide a solution to just about any problem.

Btw, show me a town with only one road leading out of it…

[Tex2002ans]

@Eugene

What I am missing here?

Whenever you run into some problems, try solving them on your own. A good rule of thumb is to substitute another good and see how the example works out.

What would happen if the only grocery store in town starts to “gouge” prices, what would happen?

[Southern]

traffic between these two towns is very small

The road is unimportant and there is little demand for it. Most likely if the owner jacked up prices all traffic would cease. A second road would unlikely be build because next to no one wants the road. The resources that previously went to maintain the road would be invested elsewhere.

Dont see the dilemma. Why build and maintain roads no one wants?

[Autolykos]

@Eugene

If a company that owns the only road from town A to town B starts to gouge prices, it is likely that another company will build a road from town A to town B in order to win market share from the first company. However the traffic between these two towns is very small, so two roads are redundant. So we have a serious waste of resources here. And even that happens only if the second company will risk to build the second road.

So there are two options. Either we have two roads, when one of them is superflous, or we have one road with very high prices. None of these options seem good for the economy.

What I am missing here?

Well, who’s to say how many roads between town A and town B are “enough”? No objective answer exists there. To say that building another road between town A and town B is “a serious waste of resources” is to impose your own value judgements on others. What obligates them to agree with you?

This argument is akin to socialists arguing that it’s wasteful for businesses to spend resources on advertising.