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Monopolies?

Cerebral_Narcissist
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11/13/2011 11:20:03 AM
Posted: 5 years ago
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?
I am voting for Innomen because of his intelligence, common sense, humility and the fact that Juggle appears to listen to him. Any other Presidential style would have a large sub-section of the site up in arms. If I was President I would destroy the site though elitism, others would let it run riot. Innomen represents a middle way that works, neither draconian nor anarchic and that is the only way things can work. Plus he does it all without ego trips.
Ragnar_Rahl
Posts: 19,297
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11/13/2011 11:26:27 AM
Posted: 5 years ago
The capital possessed by its opponents is not thereby destroyed, it is sold at bargain basement to a party who must merely ramp up production when the "predator company" increases prices. If the "predator company" has good enough timing to stop that, the inventory is still not destroyed, and will still be sold the moment prices go up again, hence, the company will sell a lot of things it loses money on, very few it gains, and eventually go bankrupt.

If a company is good enough to overcome this obstacle, then the gov't is unlikely to be a barrier to them either.
It came to be at its height. It was commanded to command. It was a capital before its first stone was laid. It was a monument to the spirit of man.
I-am-a-panda
Posts: 15,380
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11/13/2011 11:37:28 AM
Posted: 5 years ago
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Because in Oligopoly (A few large firms producing similar products)firms are subjected to sticky prices. The revenue curve is kinked - If they increase prices demand is reduced as their competitors now sell their goods at a better price, while decreasing their price will lead their competitors to do the same and just result in lower prices for everyone. Essentially, if a firm slashes its price it will probably kill itself doing so.
Pizza. I have enormous respect for Pizza.
I-am-a-panda
Posts: 15,380
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11/13/2011 11:38:37 AM
Posted: 5 years ago
At 11/13/2011 11:37:28 AM, I-am-a-panda wrote:
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Because in Oligopoly (A few large firms producing similar products)firms are subjected to sticky prices. The revenue curve is kinked - If they increase prices demand is reduced as their competitors now sell their goods at a better price, while decreasing their price will lead their competitors to do the same and just result in lower prices for everyone, and reduced profits for all the firms, which is pointless to do. Essentially, if a firm slashes its price it will probably kill itself doing so.
Pizza. I have enormous respect for Pizza.
Kinesis
Posts: 3,667
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11/13/2011 12:25:56 PM
Posted: 5 years ago
Monopolies will form in a free market. Most monopolies erode over time as a constant stream of competitors compete with them at lower than monopolistic prices - although it's conceivable that some company might be so large and economies of scale apply so much that they remain a monopoly indefinitely. Anti-trust efforts on the part of the government prevent them forming in the first place.
Kinesis
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11/13/2011 12:28:53 PM
Posted: 5 years ago
Because in Oligopoly (A few large firms producing similar products)firms are subjected to sticky prices. The revenue curve is kinked - If they increase prices demand is reduced as their competitors now sell their goods at a better price, while decreasing their price will lead their competitors to do the same and just result in lower prices for everyone. Essentially, if a firm slashes its price it will probably kill itself doing so.

What if the firms in an Oligopoly decide to merge and form a monopoly that way?
Jon1
Posts: 314
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11/13/2011 4:09:14 PM
Posted: 5 years ago
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Temporarily, but the debt from the price cuts stays.
Jon1
Posts: 314
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11/13/2011 4:10:14 PM
Posted: 5 years ago
At 11/13/2011 4:09:14 PM, Jon1 wrote:
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Temporarily, but the debt from the price cuts stays.

Free market FTW :D
mongeese
Posts: 5,387
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11/13/2011 4:31:58 PM
Posted: 5 years ago
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.
I-am-a-panda
Posts: 15,380
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11/13/2011 4:34:53 PM
Posted: 5 years ago
At 11/13/2011 12:28:53 PM, Kinesis wrote:
Because in Oligopoly (A few large firms producing similar products)firms are subjected to sticky prices. The revenue curve is kinked - If they increase prices demand is reduced as their competitors now sell their goods at a better price, while decreasing their price will lead their competitors to do the same and just result in lower prices for everyone. Essentially, if a firm slashes its price it will probably kill itself doing so.

What if the firms in an Oligopoly decide to merge and form a monopoly that way?

Mergers face a bunch of problems, namely squabbling over who gets what between the merging firms. On top of this dis-economies of scale may occur wit ha super-large firm reducing the plausible profits earned from the sale of a product.
Pizza. I have enormous respect for Pizza.
innomen
Posts: 10,052
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11/13/2011 4:52:46 PM
Posted: 5 years ago
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

That's just not true. A monopoly will do what a government does and it will defend it's position of being the only source. It will do so by expending sufficient resources so that other competitors will be either absorbed, or out gunned. A monopoly will look to increase it's size and scope as any company will do by expanding its market and its market share, while simultaneously eliminating any threat by a competitor.
jimtimmy
Posts: 3,953
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11/13/2011 7:39:12 PM
Posted: 5 years ago
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Institutions only exist because people support them... A monopoly cannot form without public support...

Furthermore, semi rational people will not be fooled by a company over and over again
President of DDO
Wnope
Posts: 6,924
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11/13/2011 9:14:42 PM
Posted: 5 years ago
At 11/13/2011 11:20:03 AM, Cerebral_Narcissist wrote:
I've never understood why monopolies do not or can not form in a free or mostly free market.

I understand that a free market promotes competition and budding entrepeneurs always seeking a slice of the pie... but I would have thought that this would only last so long. A free market is darwinian, what prevents cunning predator getting full control?

Once one corporation gets sufficiently ahead of it's competitors why can't it take out loans, slash prices, undercut and destroy it's rivals, then revert back to a sensible policy after it has inherited everything?

Monopolies can form in a free market when you take into consideration historical contingency.

Let's say a new tech industry pops up. Firm A is the only one involved, and they corner 100% of the market. They get brand recognition to the point where the relevant product is associated with that firm.

Now, free market principle kick in, and Firms B through Z join in. They are all faced with transaction barriers that Firm A doesn't have to deal with at the moment. Firm A will have more infrastructure (due to more investment over time), have more producing power, and more capital. They will have more bargaining power due to marketshare and can thus drive prices down to where it only makes sense to sell the product if you already mass production (which only Firm A has at the moment).

Firm A will hold a monopoly because it simply got there first and jumped transaction barriers in a different environment than later firms.
Wnope
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11/13/2011 9:17:36 PM
Posted: 5 years ago
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

What happens when it costs 10 dollars to produce a widget if your company owns 100 units of capital, it costs 15 dollars to produce a widget if your company owners less than 20 units of capital, and the average firm starts out with 10-30 units of capital? It's economies of scales.
mongeese
Posts: 5,387
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11/13/2011 10:10:13 PM
Posted: 5 years ago
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?
Wnope
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11/13/2011 10:13:36 PM
Posted: 5 years ago
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Perhaps not, but it is an example of a monopoly forming on a free market.

Who said all monopolies are bad?
jimtimmy
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11/13/2011 10:21:52 PM
Posted: 5 years ago
At 11/13/2011 9:17:36 PM, Wnope wrote:
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

What happens when it costs 10 dollars to produce a widget if your company owns 100 units of capital, it costs 15 dollars to produce a widget if your company owners less than 20 units of capital, and the average firm starts out with 10-30 units of capital? It's economies of scales.

Sure, but this does not presuppose a monopoly...
President of DDO
Wnope
Posts: 6,924
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11/14/2011 1:52:02 AM
Posted: 5 years ago
At 11/13/2011 10:21:52 PM, jimtimmy wrote:
At 11/13/2011 9:17:36 PM, Wnope wrote:
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

What happens when it costs 10 dollars to produce a widget if your company owns 100 units of capital, it costs 15 dollars to produce a widget if your company owners less than 20 units of capital, and the average firm starts out with 10-30 units of capital? It's economies of scales.

Sure, but this does not presuppose a monopoly...

What do you mean by presuppose?

It's just an example of a natural barrier to entry that can arise to create a monopoly. In this case, historical contingency determines which company is the monopoly: the "quickest" one to attain economies of scale.
Thaddeus
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11/14/2011 1:19:50 PM
Posted: 5 years ago
At 11/14/2011 1:52:02 AM, Wnope wrote:
At 11/13/2011 10:21:52 PM, jimtimmy wrote:
At 11/13/2011 9:17:36 PM, Wnope wrote:
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

What happens when it costs 10 dollars to produce a widget if your company owns 100 units of capital, it costs 15 dollars to produce a widget if your company owners less than 20 units of capital, and the average firm starts out with 10-30 units of capital? It's economies of scales.

Sure, but this does not presuppose a monopoly...

What do you mean by presuppose?

It's just an example of a natural barrier to entry that can arise to create a monopoly. In this case, historical contingency determines which company is the monopoly: the "quickest" one to attain economies of scale.

Simple barriers to entry such as one you listed do not create monopolies. They create fewer players in the market, but they would not prevent another corporation entering if there was profit to be made.
One way of creating a monopoly under a free market is if they can just out-perform everyone else in the market. I wouldn't complain.
Greyparrot
Posts: 14,325
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11/14/2011 1:24:59 PM
Posted: 5 years ago
At 11/13/2011 4:52:46 PM, innomen wrote:
At 11/13/2011 4:31:58 PM, mongeese wrote:
Any attempt at a monopoly will be defeated by competitors that offer goods and services at lower prices. It takes government banishment of competition for a monopoly to form.

That's just not true. A monopoly will do what a government does and it will defend it's position of being the only source. It will do so by expending sufficient resources so that other competitors will be either absorbed, or out gunned. A monopoly will look to increase it's size and scope as any company will do by expanding its market and its market share, while simultaneously eliminating any threat by a competitor.

Your startling comparison between monopoly objectives and a governments objectives can also tie into many religious institution's objectives.....
innomen
Posts: 10,052
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11/14/2011 3:58:19 PM
Posted: 5 years ago
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Fine mongeese, but can you really call it a "free" market? A company will optimize their prices so that it will be high enough so that they make the greatest possible profit, but low enough to prevent competition. With the elimination of all potential competition, is the market still free?
darkkermit
Posts: 11,204
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11/14/2011 4:09:36 PM
Posted: 5 years ago
At 11/14/2011 3:58:19 PM, innomen wrote:
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Fine mongeese, but can you really call it a "free" market? A company will optimize their prices so that it will be high enough so that they make the greatest possible profit, but low enough to prevent competition. With the elimination of all potential competition, is the market still free?

Yes.....
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Kinesis
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11/14/2011 4:15:13 PM
Posted: 5 years ago
Mergers face a bunch of problems, namely squabbling over who gets what between the merging firms. On top of this dis-economies of scale may occur wit ha super-large firm reducing the plausible profits earned from the sale of a product.

Neither of those problems are that significant. They are resolvable considering that all the firms involved have an incentive to reduce competition by whatever means necessary - they'll work something out for the first, and the second won't apply all the time and some of the time will happen in reverse. The biggest threat to a free market isn't firms slashing and burning each other - the biggest threat is firms cosying up to fix prices.
Kinesis
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11/14/2011 4:20:15 PM
Posted: 5 years ago
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Yes, there is. Competition between companies on the market does not just drive down prices - it spurs investment in innovation and improvement in existing goods and in the creation of new goods. If one monopoly is holding the entire market the incentive to do so is greatly reduced.
innomen
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11/14/2011 4:24:59 PM
Posted: 5 years ago
At 11/14/2011 4:09:36 PM, darkkermit wrote:
At 11/14/2011 3:58:19 PM, innomen wrote:
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Fine mongeese, but can you really call it a "free" market? A company will optimize their prices so that it will be high enough so that they make the greatest possible profit, but low enough to prevent competition. With the elimination of all potential competition, is the market still free?

Yes.....

free market (n): An economic system in which prices are determined by unrestricted competition between privately owned businesses.

No.
Greyparrot
Posts: 14,325
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11/14/2011 4:29:32 PM
Posted: 5 years ago
At 11/14/2011 4:24:59 PM, innomen wrote:
No.

Agree:

And of course the reason is, Monopolies no longer behave the same way as they did when they were destroying the competition. After the war is over, they reap the rewards, and the party is over for the consumer.
darkkermit
Posts: 11,204
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11/14/2011 4:45:00 PM
Posted: 5 years ago
At 11/14/2011 4:24:59 PM, innomen wrote:
At 11/14/2011 4:09:36 PM, darkkermit wrote:
At 11/14/2011 3:58:19 PM, innomen wrote:
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Fine mongeese, but can you really call it a "free" market? A company will optimize their prices so that it will be high enough so that they make the greatest possible profit, but low enough to prevent competition. With the elimination of all potential competition, is the market still free?

Yes.....

free market (n): An economic system in which prices are determined by unrestricted competition between privately owned businesses.

No.

There's nothing stopping companies from starting their own businesses. They'll just be at a loss :).
Open borders debate:
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Greyparrot
Posts: 14,325
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11/14/2011 4:47:02 PM
Posted: 5 years ago
At 11/14/2011 4:45:00 PM, darkkermit wrote:

There's nothing stopping companies from starting their own businesses. They'll just be at a loss :).

Oh come on darkie!

That's like saying you have free will if someone has a gun to your head, you are just at a loss!
innomen
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11/14/2011 4:59:28 PM
Posted: 5 years ago
At 11/14/2011 4:45:00 PM, darkkermit wrote:
At 11/14/2011 4:24:59 PM, innomen wrote:
At 11/14/2011 4:09:36 PM, darkkermit wrote:
At 11/14/2011 3:58:19 PM, innomen wrote:
At 11/13/2011 10:10:13 PM, mongeese wrote:
Should a company form that sells a product at prices so low that new companies simply cannot compete price-wise, then is there really anything to complain about?

Fine mongeese, but can you really call it a "free" market? A company will optimize their prices so that it will be high enough so that they make the greatest possible profit, but low enough to prevent competition. With the elimination of all potential competition, is the market still free?

Yes.....

free market (n): An economic system in which prices are determined by unrestricted competition between privately owned businesses.

No.

There's nothing stopping companies from starting their own businesses. They'll just be at a loss :).

You know better than making a statement like that.
darkkermit
Posts: 11,204
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11/14/2011 5:12:30 PM
Posted: 5 years ago
At 11/14/2011 4:47:02 PM, Greyparrot wrote:
At 11/14/2011 4:45:00 PM, darkkermit wrote:

There's nothing stopping companies from starting their own businesses. They'll just be at a loss :).

Oh come on darkie!

That's like saying you have free will if someone has a gun to your head, you are just at a loss!

Of course you still have free will if there's a gun to your head.
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