Am Dienstag, den 04.03.2008, 18:47 -0800 schrieb ········@gmail.com:
> > We would prefer that vendors compete on the merits of their products,
> > not the depth of their pockets. If a company makes really great
> > gadgets, and they become rich selling those gadgets, this is deserved.
> > But if they decide that they also want to corner the market on widgets,
> > but they don't make very good widgets, it doesn't seem right that they
> > should use all their gadget profits to undercut the other widget vendors
> > and drive them out of business.
>
> Would you complain if the company was able to undercut its competitors
> due to a manufacturing/technological breakthrough (i.e., increased
> productivity)?
>
> Of course not.
>
> So why complain about a company that is able to undercut its
> competitors by giving away money? Money is just a store of
> productivity. Why does it matter that the productivity gain was not
> made in the same industry/in the same time period/by the same
> company?
In the former case, it's a long-term net win for the customers.
In the latter case, it's a long-term net loss for the customers.
And since I'm a customer most of the time, I opt for the latter, as
would be expected for a rational individual.
> > You say this is the consumers' fault -- they knowingly bought the
> > inferior widgets. But they make a reasonable economic choice at the
> > time, buying something 90% as good for 85% the price. The problem is
> > that once the competitors are gone, GadgetCo can raise the prices of
> > their widgets, while not improving on their quality.
>
> No company can sell a product for more than what it is worth.
>
> If they try to sell it for more, they will draw competitors. And the
> competition need not be in the same industry.
>
> The lesson here is that the marginal utility of the product is what
> determines prices. Nothing else.
You're ignoring the effects from market entry barriers here.
If entering a market costs $1,000,000 for advertising, hiring people,
buying equipment and such, then anybody trying to compete with the
monopolist is wagering this amount of money on his ability to outsmart
the monopolist.
The problem is that the monopolist will immediately react to
competition, by lowering his prices again. As long as the monopolist is
able to dump, attacking one of his monopolies is pointless and will earn
the competitor just a loss of his investments.
So in this situation, the price isn't determined by marginal utility,
it's determined by who has the deeper pockets.
Regards,
Jo