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Re: What do we mean when we say "competition?"

  • From: JC Dill
  • Date: Wed Nov 16 20:14:56 2005

David Barak wrote:
--- Owen DeLong <owen@delong.com> wrote:

Is that still true if the "adequate" service is
being provided at a price which is two to three
times what it should be costing and the provider is
enjoying the ability to do this because nobody else is in the market space?
I'm confused.  Earlier in this thread you were arguing
that the current providers were keeping priced
artificially LOW.
They are keeping prices artificially low now, to drive out the competition. They will raise prices once they have no competition, as monopoly companies always have done in the past.

Standard free market behavior is for a large company to cut prices (when they can, when they have income from some other source to afford this tactic) to drive the competition out of business. Then once they have a monopoly to raise prices (and thus profits). Check out the price for Microsoft software over the years. As their products each became a de facto monopoly in their market the prices went WAY up. When the product has competition they lower the price (or give the software away "free" - bundled with their monopoly OS) until they drive the competition out of business (IE versus Navigator). The history of Standard Oil Company is the reason we have anti-trust laws today to try to prevent monopoly businesses from anti-competitive behavior. Standard Oil would lower oil prices in a new market until they drove out the competition, and then raise oil prices once they had a monopoly and use the profits from those raised prices in that market to subsidize the lower price in another market where they were busy driving out the competition. Does this sound familiar?

Ida Tarbell's book _The History of the Standard Oil Company_ is a great place to learn about this in depth. It has been edited into a "briefer version" (256 pages in paperback versus over 800 in the original 2-part hardbound editions) for today's busy readers:

<http://www.amazon.com/exec/obidos/tg/detail/-/0486428214/>

jc







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