Pete, Without a doubt, MegaShoddy is a nasty piece of work.
But it's fantasy. Let me have a half dozen examples of this (but with real names) that impose this extortion on the consumer without government help. Make it in the last five years or so. Harry ******************************************** Henry George School of Social Science of Los Angeles Box 655 Tujunga CA 91042 Tel: 818 352-4141 -- Fax: 818 353-2242 http://haledward.home.comcast.net ******************************************** -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of pete Sent: Sunday, January 18, 2004 5:34 AM To: [EMAIL PROTECTED] Subject: RE: [Futurework] Two sorts of evolutionary economics (the paradoxical relation of pure theory to reality) On Fri, 16 Jan 2004, Harry Pollard <[EMAIL PROTECTED]> wrote: >Brad, > >The "modern person" doesn't believe in perfect competition. >Economists use it to show that actual market competition is less >than their perfection. > >In fact, the market price mechanism does not establish a perfect >equilibrium. It hunts around it, as I've said like a thermostat. >So, at any given time, the price may be a little above or a >little below the "perfect" price. If there are difficulties in >supply, the hunting may go fat from the equilibrium. > >There are perhaps four general "imperfect" competitions. > >Direct manipulation of the market, which mostly needs government >collusion (preventing imported sugar from reducing the price we >pay, for example). This is what Ed wrote about in a recent post. I think you've left out a major item. I guess some of "direct market manipulation" requiring government collusion might include the failure of governments to enforce anti-trust legislation, although I thought it was your position that the market would tend towards perfection without government interference. But the big one which seems apparent to me has to do with the imbalance of competitors, something like "megacorporate inertia". For instance, MegaShoddy Crapola International has the current worldwide lock on dealy-widgets. After a hardfought pricewar, they have pounded all their competition into the ground, manufacturing offshore in gynormous robot factories serviced by peasants who work 22 hours a day for 3 cents a month, and now that MegaShoddy has a clear field, they've started a "productivity" campaign to maximize profit by degrading the quality of the materials used to make the dealy-widgets to the point where they are costing half a cent each, but MegaShoddy is selling them for 20 bucks a piece. Well, this really looks like an opportunity for a competitor to step in. The trouble is, MegaShoddy's massive factory base and huge coffers allow them to identify and isolate any prospective competitor in any local market where they might try to start offering a competitive product. If it's a small startup, they send suits to offer a buyout to the new entrepreneurs, offering them more money than they're likely to realize in fifteen years building up their company, enough to retire on. If they take it, preferably before anyone has noticed their product, MegaShoddy simply shuts them down, not attempting to duplicate the new product, which would have to be better than MSCI's garbage in order to mount a serious competition, but therefore would invariably have a much smaller profit margin. Without the better product, especially if most haven't heard about it, everyone is still stuck buying the MegaShoddy dealy-widget. But what about if the startup doesn't take the offer? Then MegaShoddy knocks their prices down, only in the local region where the new competitor is trying to get their first foothold. They run big advertizing promotions, practically give away their product so the demand for the competitor product is undermined, and generally do everything they can to drive them out of business, meanwhile dangling steadily more enticing buyout offers in front of them. They also use their muscle to extort retailers, linking the exclusive display of MegaShoddy product to all sorts of benefits, like reduced wholesale price, free promotion for the retailer, even subsidies to improve and upgrade facilities (and wherever possible outright bribes), to keep the competitor product away from consumers. The startup either caves to the offer or crumbles under the withering assault. If all else fails, MegaShoddy will temporarily offer a superior product head to head with the competition, at a giveaway price. They have deep pockets, and as soon as the competition is destroyed, they can recoup their expenses by deleting the higher quality product, typically by just putting "new, improved" on the label, and substituting an even crummier than usual piece of crap, at an even higher price than before the pricewar began. OK, but what about if the competition is from another international megacorporation? Well, in that case, to mount a serious challenge, the new competitor is going to have to sink a very large amount of money into preparing for a long drawn out pricewar with MegaShoddy, who can be relied on to fight tooth and nail. The new product will have to be significantly better than MSCI's, offered for considerably less money, probably at a loss. over a wide region of the planet, for at least a few years before they can beat back MegaShoddy's attempt to bankrupt them. But MegaShoddy has the global lock on the product, and as it happens, in order to be guaranteed a slim chance at gaining or retaining employment, everyone needs to have at least one dealy-widget, and as MegaShoddy's dealy-widgets wear out after a little while, a planetful of people are constantly pouring masses of money into MegaShoddy's constantly burgeoning war chest. The prospect is to say the least daunting. The new megacompetitor is looking at dropping billions before they can get established, and there's always the possibility that they might screw up. It looks like a very big risk. It also looks like a big problem for MegaShoddy, as the competition will cost them gigabucks even if they come out on top. So, the most salutory solution for both sides is if early on in the challenge, MegaShoddy makes a lucrative under the table offer to the contender to quietly go away. It's much cheaper that way for everybody involved. The only problem is the arrangement has to be carefully crafted so that in the unlikely event of a diligent enforcer of antitrust legislation, the deal is well concealed. To some degree this can be accomplished by skipping through several jurisdictions across the planet, not leaving enough evidence in any country to trigger its antitrust laws. >Errors of imperfect information made by buyers and sellers is >another, which exercise is uselessly made much of by some >economists. You buy tomatoes for a dollar a pound, but Hah! - You >could have bought them for 90c across the street! So, the market >is imperfect. Wow! Joan Robinson built a career around this. > >The third example of imperfect competition is the collectible >market. The price mechanism handles a shortage by raising prices. >This has the effect of speeding production and speeding movement >to the market - whereupon the price drops as the goods arrive. >Don't think any economist writes about this. [...] _______________________________________________ Futurework mailing list [EMAIL PROTECTED] http://fes.uwaterloo.ca/mailman/listinfo/futurework
