[Jdanz]

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That is not the logic why Borodog doesn't think predatory pricing would never work. Predatory pricing doesn't work because:

1. It requires a business to run at a loss for a (long?) period of time. This is obviously awful for businesses who consider it and good for consumers.
2. If a firm actually does manage to run its competitors out of business, the high price level (and profits possible in that industry) will encourage other firms to compete with it. Again, bad for the firm trying it, good for consumers.
3. When a firm goes through stage one, if it is publicly owned and traded, it can be short sold by the general public. This, combined with the whole "running a loss for an indeterminate amount of time" thing are probably why firms don't try this strategy.

Or, there might not be any examples of predatory pricing because government regulation prevented them all. Pretty obvious what side to bet on here IMO...

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The problem that most people have is with item 2, I don't see the logic to 3 either but maybe another time.

The thing about 2 is that it doesn't take into account the strategic reactions of other "players of the game". I forget who wrote it, but one of the big players in management consulting/efficiency/business strategy wrote about how all the banks in one area were open 5 days a week originally. Then one guy had the bright idea to open his bank on Saturdays to try to draw extra customers, which he did. Eventually all the banks opened saturday and that competative advantage was lost, so now all the banks were open saturday better serving the customer while generating no additional profit.

So that's the example of the free market working to the customers benefit. However, the point of the article was to show how to avoid competition that would be zero-sum, that one has to account for how others will react. The author goes on to tell how other banks in other areas have refrained from competing with one another in similar ways which only benefit customers while hurting the businesses. Businesses know that even if they could provide a better service and capture market share, they're only hurting themselves if other business will have to follow their lead.

To natural monopolies.

The main argument in 2 is that if someone is charging "predatory" prices than people will compete to provide the same good/service to access these windfall profits. The problem is that the "predatory" firm doesn't stand still. If someone enters the market to try to take advantage of overpriced goods/services the original provider will simply match the new entrant. In industries where there are generally significant capital expenditures to start a business potential entrants to the market are deterred because they don't actually have access to the current inflated market.

Therefore a predatory natural monopoly can "gouge" largely in relation to the capital expenditure required to start a competing business. Knowing how valuable the price premium is to the original firm a potential competitor understands before trying to compete the cost of overcoming the vested interest, and knows that it will, itself, not be able to charge that premium. Further it knows that it must be enormously overcapitalized as the first firm will have an incentive to take losses to forestall competition.

In general knowing the likely reactions of the "natural monopoly" firm competitors will be unlikely to enter the marketplace.

I think the above disproves 3 as well, as shorting a stock doesn't work if what i described above is seen by other stock holders as likely to be effective.

edit: and frankly this in less obvious forms happens all the time, imho, but is likely outweighed by the times it doesn't. I'm not really very pro-regulation in this context, as the medicine seems worse than the disease, but i think the disease does exist. The occurrence by far more harmful to consumers is a general urge by competitors to, well, not compete, but I certainly don't think that qualifies as a "natural monopoly"