What do we mean when we say "competition?"

Thu Nov 17 01:13:41 UTC 2005

David Barak wrote:
> 
> --- Owen DeLong <owen at 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