Monopolies wouldn't exist in the free market?

[vhawk01]

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just once they start charging crazy prices some other dude can come in and compete with them.

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What happens when he buys the other guy out?

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Then I step in.

But what happens when he buys me out?

Then you step in.

See?

[TomVeil]

Any buisness man worth his salt wouldn't run his monopoly that way though. He wouldn't buy out the competition outright. He'd simply run his buisness differently in order to drive him out of buisness. What's the difference in paying somebody 100K to get out of the buisness and losing 100K to drive the other guy out of buisness? It discourages the next guy to jump in and try to take some of your buisness when you return your prices to normal.

[vhawk01]

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Any buisness man worth his salt wouldn't run his monopoly that way though. He wouldn't buy out the competition outright. He'd simply run his buisness differently in order to drive him out of buisness. What's the difference in paying somebody 100K to get out of the buisness and losing 100K to drive the other guy out of buisness? It discourages the next guy to jump in and try to take some of your buisness when you return your prices to normal.

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Can you elaborate on this a little further? How does he run his business differently? What does he do AFTER he runs the other business into the ground? How does he make it so that no one can exploit his MO?

[pvn]

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Any buisness man worth his salt wouldn't run his monopoly that way though. He wouldn't buy out the competition outright. He'd simply run his buisness differently in order to drive him out of buisness.

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EXACTLY! He'd try to *outcompete* the other players. And when he does that, consumers benefit.

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What's the difference in paying somebody 100K to get out of the buisness and losing 100K to drive the other guy out of buisness? It discourages the next guy to jump in and try to take some of your buisness when you return your prices to normal.

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Yeah. Nobody can compete with a company that's hemmoraging money!

[BCPVP]

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Any buisness man worth his salt wouldn't run his monopoly that way though. He wouldn't buy out the competition outright. He'd simply run his buisness differently in order to drive him out of buisness. What's the difference in paying somebody 100K to get out of the buisness and losing 100K to drive the other guy out of buisness? It discourages the next guy to jump in and try to take some of your buisness when you return your prices to normal.

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There are many reasons why this doesn't work. See Thomas DiLorenzo's The Myth of Predatory Pricing, Dominick Armentano's Antitrust and Monopoly and Antitrust Reform: Predatory Practices and the Competitive Process, the
Criticism under the Wiki on Predatory Pricing, or a section of George Reisman's Capitalism for more info.

[Borodog]

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The bad sort of monopoly isn't achieved by undercutting or making a better product, it's achieved by buying up all other providers of that product and then price gouging. This is a hobby of mine in the World of Warcraft auction house.

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Luckily it doesn't work in the real world. "Predatory pricing" is the Unicorn of economics. There's a lot of mythology written about it, but nobody has ever observed it.

[Borodog]

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Any buisness man worth his salt wouldn't run his monopoly that way though. He wouldn't buy out the competition outright. He'd simply run his buisness differently in order to drive him out of buisness. What's the difference in paying somebody 100K to get out of the buisness and losing 100K to drive the other guy out of buisness? It discourages the next guy to jump in and try to take some of your buisness when you return your prices to normal.

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Uh huh. What business are you in, may I ask?

I can just see the pitch to your boss:

"Hey boss! I know how we can corner the market!"

"Oh yeah, Tom? How's that?"

"Well, we just have to suffer continual losses for five to ten years . . . "

"You're fired."

[Phil153]

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The bad sort of monopoly isn't achieved by undercutting or making a better product, it's achieved by buying up all other providers of that product and then price gouging. This is a hobby of mine in the World of Warcraft auction house.

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Luckily it doesn't work in the real world. "Predatory pricing" is the Unicorn of economics. There's a lot of mythology written about it, but nobody has ever observed it.

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As part of an economics assignment in college, I looked at an Australian Senate report into the Australian supermarket industry. One of the things it looked at was the behavior of supermarket chains in rural areas. The large chains - there are only really three in Australia - would set up shop, and charge city prices for goods, which was below cost once transport was factored in, especially for fruit&veg. This would drive many of the existing small stores out of business. A year of so later, pricing would be consistent with that in other country areas (significantly higher than the city prices they were first charging).

Isn't this exactly predatory pricing?

Now I agree that in an area with a large population and a large of capital and entrepreneurship, predatory pricing of many goods and services would not be viable. Economics 101. Duh. But many areas and situations don't fall under the freshman economic assumptions you REQUIRE to be true in order to make many of your claims.

[Copernicus]

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The bad sort of monopoly isn't achieved by undercutting or making a better product, it's achieved by buying up all other providers of that product and then price gouging. This is a hobby of mine in the World of Warcraft auction house.

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Luckily it doesn't work in the real world. "Predatory pricing" is the Unicorn of economics. There's a lot of mythology written about it, but nobody has ever observed it.

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As part of an economics assignment in college, I looked at an Australian Senate report into the Australian supermarket industry. One of the things it looked at was the behavior of supermarket chains in rural areas. The large chains - there are only really three in Australia - would set up shop, and charge city prices for goods, which was below cost once transport was factored in, especially for fruit&veg. This would drive many of the existing small stores out of business. A year of so later, pricing would be consistent with that in other country areas (significantly higher than the city prices they were first charging).

Isn't this exactly predatory pricing?

Now I agree that in an area with a large population and a large of capital and entrepreneurship, predatory pricing of many goods and services would not be viable. Economics 101. Duh. But many areas and situations don't fall under the freshman economic assumptions you REQUIRE to be true in order to make many of your claims.

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Of course...and when you find an example the answer will be "oh that didnt have predatory intent"

[BCPVP]

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Isn't this exactly predatory pricing?

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Something tells me there's more to it than that. The model most people describe involves the predator company charging monopoly prices once it is established because they need to make up for the low price during the predation period and because they are now the only firm in the area and can "threaten" potential entrants. Lots of businesses start out with discounts, low prices, etc to gain a foothold in the market otherwise there probably won't be much reason for customers to switch. Unless the new stores offer something different which defeats the point of it being predatory.

I won't say that it's impossible to engage in predatory pricing for a time. But it is very difficult for reasons mentioned as well as documented by many people and so rare that it shouldn't merit the powers conceded to government to "deal" with such practices.