Here's a picture that might help.

I stole it from this site http://ingrimayne.com/econ/Monopoly/Monopoly.html but I didn't read it thoroughly, so I can't tell you that its good or bad.

The economic idea of efficiency is when the marginal cost = marginal benefit.

Marginal benefit is given by the demand curve. So it is when MC = Demand that the utility is maximized in the economy. Regardless of profit, if it costs less than it is seen as beneficial to produce one more unit of something, it should be produced.

In competition, this is not a problem, because the MR curve faced by firms IS the demand curve as well. So they produce where MR = MC, which happens to be where MC = MB (the efficient output). Instead, a monopolist faces a MR curve that has a greater slope than the Demand curve. Thus, he operates at profit maximization (MC = MR) which is an inefficient quantity. As you can see, it is more beneficial to the next purchaser of this good than it costs the monopolist to produce the good, but he won't produce it.

10/18/2006 7:19:29 AM

Quote :

"So we do need government intervention?"

What-the-fuck. Kris, we are not anarchists, ok? Without government to secure our liberties we have chaos. We have assigned property rights to inventions through patents, it is only sensible that the government defend our rights and thus our property. This is the second time in this thread alone that I have had to say this: Capitalism IS NOT Anarchy, it requires a whole host of government instititutions to secure Law & Order. Beyond that most problems we have today stem from the government trying to not only do its job but our job as well, which results in corruption, instability, and mis-management.

10/18/2006 9:12:20 AM

^ Right on. None of us capitalists are advocates of anarchy. We believe that the economy should have the least amount of government interference as possible and when it does interfere, it should do so to protect the rights of others.

About efficiency: Lonesnark is right. No matter if there is 1 firm or 1000000 firms, the incentive in a capitalist system is to make as much profit as possible and the way to achieve that is to either 1) reduce costs, 2) increase price, 3) both.

A monopoly will still try to make the widget at the lowest price possible and sell for the highest price possible (what every firm does).

That's where efficiency is created, by maximizing profits (MC=MR).

10/18/2006 9:19:51 AM

I think bgmims just explained the basic economic concept of why monopolies are ineffcient in terms that anyone can get, so I hope you guys read through that.

Quote :

"What-the-fuck. Kris, we are not anarchists, ok? Without government to secure our liberties we have chaos. We have assigned property rights to inventions through patents, it is only sensible that the government defend our rights and thus our property."

Yes but we are talking about government intervention in the economy, which someone stated earlier was unneccesary.

Quote :

"Beyond that most problems we have today stem from the government trying to not only do its job but our job as well, which results in corruption, instability, and mis-management."

No, most of our problems today come from a wide and complex array of causes. Trying to nail it down to one thing is no less silly than how salisburyboy trys to blame all of the problems on the jews, you simply call your big bad jews "the government". Things aren't that simple.

Quote :

"A monopoly will still try to make the widget at the lowest price possible and sell for the highest price possible (what every firm does). That's where efficiency is created, by maximizing profits (MC=MR)."

You still don't understand. Efficency is only achieved by MC=MR in a perfectly competitive market. In a monopoly, because of the demand curve faced, the monopoly is able to price their goods artifically high, because of this, the market is unefficient. I don't know any other way to try to explain this simple concept.

10/18/2006 11:30:04 AM

Kris, there are two types of efficiency here, we are each using a different meaning of the word.

Our usage is resource efficiency. A monopoly will seek to minimize waste when it comes to inputs, therefore maximizing resource efficiency by battling to keep costs down.

Your usage is utility efficiency, I guess. At the lower price of a competitive marketplace society will consume more of the good and therefore gain more utility from the market. But I find it difficult to call this a form of efficiency since it increased consumption by increasing inputs by the same amount.

10/18/2006 1:36:39 PM

Quote :

"Kris, there are two types of efficiency here, we are each using a different meaning of the word."

No, I've already explained that you've confused microeconomics with macroeconomics. Can you guess which one we're actually talking about here?

Quote :

"Your usage is utility efficiency"

Utility is something totally different. We are talking about is economic efficiency, I apologize if you don't know what that is, but don't act as if the word has multiple meanings because you didn't know what it's actual meaning is.

10/18/2006 2:29:45 PM

Efficiency is still calculated by dividing outputs by inputs, right?

Maybe it is just that I am an Engineer and Kris is trying make himself look smart, but I suspect a word should not radically change meaning just because the subject has changed, especially when it doesn't have to.

10/18/2006 2:57:30 PM

^ when at fault, redefine.

10/18/2006 3:03:00 PM

^ It doesn't matter anyway, we now know what he means to say and I trust he has figured out what we are talking about.

10/18/2006 3:09:11 PM

Quote :

"Efficiency is still calculated by dividing outputs by inputs, right? Maybe it is just that I am an Engineer and Kris is trying make himself look smart, but I suspect a word should not radically change meaning just because the subject has changed, especially when it doesn't have to."

Economic efficiency is a term that has a specific meaning, just because you don't know what means doesn't mean you can make up your own meaning for it.

Quote :

"It doesn't matter anyway, we now know what he means to say and I trust he has figured out what we are talking about."

I still find it upsetting that instead of admiting you were wrong and didn't know what you where talking about, you try and make up your own meaning and call us wrong.

10/18/2006 3:54:26 PM

Quote :

"Economic efficiency is a term that has a specific meaning, just because you don't know what means doesn't mean you can make up your own meaning for it."

AAAAAAAAAAAAAAAAHAHAHAHAH

10/18/2006 4:00:52 PM

whats funny is that after about two pages you still don't understand monopoly pricing or economic efficiency

10/18/2006 4:04:36 PM

Quote :

"Efficiency is still calculated by dividing outputs by inputs, right? "

Yes, but economic efficiency is entirely different altogether. You were close to right when you said we were "utility efficiency" although Marginal Benefit is an abstract concept that simply means better off in some way. Utility is how I generally think of it, but it doesn't necessarily mean utility.

A monopoly is still resource efficient, but it is economically inefficient. That should settle the dispute here.

On a side note:

Quote :

"None of us capitalists are advocates of anarchy. We believe that the economy should have the least amount of government interference as possible and when it does interfere, it should do so to protect the rights of others."

Agreed^infinite

On an additional side note:
Loneshark and Onorio...it sounds to me like you guys think monopolies are a good thing. Do you? If not, why are they bad?
The reason I ask is that neither of you seemed to think in terms of economic efficiency (understandable for the engineer) when this discussion erupted. If not efficiency of output, what is the reason for anti-trust laws?

10/18/2006 6:52:52 PM

ok all of you need to learn something about communism. You an sit here and say it would work in any nation but you would have to define what work meant but the main reason the "perfect on paper" economic system cannot survive is that people are corrupt and the leaders or overseers of the system would take advantage of their position and it would either become a dictatorship or the people would revolt.

10/18/2006 8:49:34 PM

What are you talking about?

There's only one of us that thinks communism might work well and that's Kris. And even he thinks you have to turn human beings into machines (my paraphrase, no need to defend that Kris) before it would work well. The truth is, not even one of us thinks communism would work in the current state of the world.

10/18/2006 9:38:44 PM

Quote :

"it sounds to me like you guys think monopolies are a good thing. Do you? If not, why are they bad?"

Monopolies are a funny thing, I guess they are in the same vein as a gun or a car, it depends on the circumstances. A gun can be used for good or bad, the same goes for monopolies. For example, people don't consider it a crime against humanity when we grant an inventor a temporary monopoly. On the same note, I don't think we should condemn Bill Gates for turning Microsoft into the next best thing to a monopoly. He did it through hard work and by building a whole industry from scratch. His current quasi-monopoly, in my mind, is his reward for foresight and hard work, just as if he was granted a patent on his efforts.

It is in this theory that monopolies almost become necessary for the system to function well. You see, in a competitive market no firms are making large profits, in fact some are losing money. Well, why should a firm persist in a business when it is losing? In a world without monopolies they shouldn't, even if they eventually win their rewards will be small, so losing firms will more quickly give up competing, the potential rewards are not worth the cost. Conversely, in a world with monopolies, firms will persist, waiting for the industry leaders to make a mistake, allowing them to seize the quasi-monopoly position and claim their just rewards. This is the irony: the possibility of gaining a monopoly actually fuels competition. A firm may be losing money now, but if it can hold on just longer than its competitors then it will gain a monopoly and win big. As every firm knows this, no firms give up; so the monopoly, in this case, never develops.

This also makes them short lived. Even if a monopoly develops, other firms will enter into competition knowing full well that they will lose lots of money in the beginning, but they are looking forward to a future (that never develops) of attaining their own monopoly. This is why Standard Oil managed to lose half its market share in the two decades before it was charged with anti-trust violations. Gulf Oil spent millions and took years eating away at Standard Oil's market share before it made a penny, much less a just return on their investment.

This all turns bad, of course, when monopolies are not earned (just as when patents are not earned). For example, the 3rd world is full of state protected monopolies whose only claim to protection is their guy won an election. This is an unearned reward and cannot be challenged regardless of how incompetent they are managed.

[Edited on October 18, 2006 at 10:43 PM. Reason : .,.]

10/18/2006 10:39:35 PM

Quote :

"I don't think we should condemn Bill Gates for turning Microsoft into the next best thing to a monopoly"

Well I think a lot of that is thanks moreso to his efforts in making an effective and easy to use product. I don't think he'd still be on top if he functioned at the level of most other companies.

Quote :

"Well, why should a firm persist in a business when it is losing?"

That's a question that has little reason to be asked. We do have markets that are nearly perfectly competitive, and firms do regularly enter this market. Why do they do it? It isn't in hopes to be monopoly one day, it's simply because there is money to be made.

Quote :

"This is the irony: the possibility of gaining a monopoly actually fuels competition. A firm may be losing money now, but if it can hold on just longer than its competitors then it will gain a monopoly and win big. As every firm knows this, no firms give up; so the monopoly, in this case, never develops."

This simply isn't how economics works. Companies are out to make money, not neccesarily to become a monopoly. Becoming a monopoly is simply a way of making money.

Quote :

"Even if a monopoly develops, other firms will enter into competition knowing full well that they will lose lots of money in the beginning, but they are looking forward to a future (that never develops) of attaining their own monopoly."

This isn't always an option simply due to economies of scale and market power. On a long enough timeline, will it happen? Sure, but on a long enough timeline money will start falling out of the sky, that doesn't make it a good idea to just stand outside with your wallet open.

10/19/2006 1:00:12 AM

Quote :

" Maybe it is just that I am an Engineer and Kris is trying make himself look smart, but I suspect a word should not radically change meaning just because the subject has changed, especially when it doesn't have to."

what a shit-engineer you're going to make, with tunnel-vision like a motherfucker

put your hands over your eyes and declare your inability to see or understand any other field of knowledge besides your own.

[Edited on October 19, 2006 at 7:29 AM. Reason : s]

10/19/2006 7:29:32 AM

^ Why? Because I suspected Kris was trying to play fast and lose with definitions? For that you condemn me? Cheeze wiz.

Quote :

"Companies are out to make money, not neccesarily to become a monopoly. Becoming a monopoly is simply a way of making money."

You answered your own statements. If being a monopoly makes money and companies want to make money then companies should want to be monopolies.

Quote :

"We do have markets that are nearly perfectly competitive, and firms do regularly enter this market. Why do they do it? It isn't in hopes to be monopoly one day, it's simply because there is money to be made."

And you make money by securing scarcity, the surest way to this goal is by driving your competitors out of business, and they hope to do the same to you. Are you seriously suggesting it has never occured to company owners to drive their competitors out of business?

10/19/2006 11:43:09 PM

Quote :

"Why? Because I suspected Kris was trying to play fast and lose with definitions? For that you condemn me?"

No, you made yourself out for a fool by acting like you knew more about the subject than you really did.

Quote :

"If being a monopoly makes money and companies want to make money then companies should want to be monopolies."

Let's put it this way, if a company could be a monopoly and not make money, would it do it? Now if a company could make money and not be a monopoly, would it do it? So which of these is most likely to be a company's primary motivation, and which is secondary?

Quote :

"Are you seriously suggesting it has never occured to company owners to drive their competitors out of business?"

This isn't really feasable for perfectly competitive markets. Firms will enter the market when there is money to be made, not when there is the possibility of a monopoly. Money is the driving force of capitalism, not monopoly.

10/20/2006 12:11:42 AM

Quote :

"Let's put it this way, if a company could be a monopoly and not make money, would it do it? Now if a company could make money and not be a monopoly, would it do it? So which of these is most likely to be a company's primary motivation, and which is secondary?"

Jesus Christ, nit-pick much? In full honesty, why stop there? Money is just green paper, you can't eat, you can't wear it, it is worthless. Companies only want to make money because people want to make money because people want to use the money to convince others to give them stuff.

You will literally argue any point. I didn't say a company's primary motivation was to be a monopoly, I said they wanted to be monopolies. It turns out there are very good reasons for this. Becoming a monopoly allows you to (avoid competition) in order to (make money) in order to (repay your investors) in order to (buy big houses and fast cars) in order to (gain status and avoid harsh weather) in order to (avoid pain and death).

Quote :

"This isn't really feasable for perfectly competitive markets. Firms will enter the market when there is money to be made, not when there is the possibility of a monopoly. Money is the driving force of capitalism, not monopoly."

You just can't follow any train of thought that is more than two steps long. Gaining a monopoly gains you money! Therefore, entering a market in which you can possibly gain a monopoly means that you gain a chance to make money, which is the driving force of capitalism.

Why do you think businesses do anything? They don't serve their customers because they feel like it, they do so because that behavior is rewarded with money. Gaining a monopoly is also rewarded with money, so we should expect businesses to also attempt to engage in this behavior.

[Edited on October 20, 2006 at 1:38 AM. Reason : .,.]

10/20/2006 1:36:56 AM

Firms may or may not intend to become monopolies, firms will always intend to make money. Firms do not enter industries to make monopolies. Monopolies do not encourage competition.
These, like the efficiency term, are basic economic concepts, and they aren't debated. You're simply wrong on this.

10/20/2006 11:41:21 AM

As usual, Kris, you just can't follow simple logic. While most firms do not believe becoming a monopoly is likely it doesn't affect the desire to do so. Why would a firm that believed it was possible to become a monopoly not seek to do so? It has already been established that doing so would make more money, and that firms seek to make money, so why do you believe that a firm that could would not seek to make money by becoming a monopoly?

10/20/2006 11:54:23 AM

Quote :

"As usual, Kris, you just can't follow simple logic."

Let's talk about logic here. We both agree it follows that "every monopoly is a way of making money". Now the next step you want to go is to say "every way of making money is a monopoly".
Now you tell me if this is logical.

Quote :

"While most firms do not believe becoming a monopoly is likely it doesn't affect the desire to do so."

That would imply that monopolies are not necessary for the system to function well.

Quote :

"It has already been established that doing so would make more money, and that firms seek to make money, so why do you believe that a firm that could would not seek to make money by becoming a monopoly?"

Because many times the possibility is too small to justify the cost of trying to become one. I seriously don't know how to explain this simple concept any clearer:
The effort to make money drives capitalism, not the effort to make a monopoly.

10/20/2006 12:20:37 PM

Quote :

"every way of making money is a monopoly"

Well, to brutalize the language I guess that sounds true. Profits come from gaining market power over your customers which requires their choices to be limited in some way, even if it is making them cross the street to reach a competitor. But monopolistic competition was not what I was talking about in this case.

I was attempting to explore the reasoning behind a finite set of business choices, specifically those that are not explained by short term results. Perhaps it would be best for me to direct you at a specific example from history. Back in 1818 Cornelius Vanderbilt broke into the New York steamship business (illegally, but that is another thread). His routes were already being served profitably by other lines. In short order, Vanderbilt started a price war, ultimately providing the service cost free. This behavior ultimately bankrupted his competitors (which had a legal monopoly at the time), gaining himself a temporary monopoly in this market. Now, in this case he did it to make a point, but it does prove a feature of capitalism: up-starts can win in competition and win financially by doing so. This feature strongly incentivises the creation of competitors, which increases competition (self-defeating prophecy).

Quote :

"That would imply that monopolies are not necessary for the system to function well."

Of course they are not necessary. What I said what that the belief that they are possible is required, not their actual existance. Even then they don't need to be possible, it merely helps encourage competition when they are. Capitalism has plenty of other incentives to keep the system operating without this one.

Quote :

"The effort to make money drives capitalism, not the effort to make a monopoly."

And like I've said repeatedly, sometimes they're the same thing.

[Edited on October 20, 2006 at 1:22 PM. Reason : .,.]

10/20/2006 1:18:48 PM

No it would not work.

10/20/2006 1:48:36 PM

i was in class today thinking and this could be started so easily by simply adjusting the tax brackets to put everybody in a smaller range of incomes and slightly decrease that range each year to progress into communism

10/25/2006 5:46:43 PM

so easy!

nevermind the fact that your economy goes to fucking shit in the meantime - it will be EASY!!! raising taxes is easy because some goddamn moron college student said so.

but just FYI, i would never stay in my highly stressful and volatile industry if my net income approached that of a used bookstore employee.

i know that falls on deaf ears.

10/25/2006 9:39:26 PM

Quote :

"Well, to brutalize the language I guess that sounds true."

You're telling me that the only way to make money is to have a monopoly? I've made money selling things, and I certainly don't have a monopoly, that pretty much takes care of that.

Quote :

"I was attempting to explore the reasoning behind a finite set of business choices, specifically those that are not explained by short term results."

Short term results aren't the only driving force in capitalism, money is. The way those choices are made is by assessing risk and opportunity costs and such.

Quote :

"In short order, Vanderbilt started a price war, ultimately providing the service cost free. This behavior ultimately bankrupted his competitors (which had a legal monopoly at the time), gaining himself a temporary monopoly in this market. Now, in this case he did it to make a point, but it does prove a feature of capitalism: up-starts can win in competition and win financially by doing so."

That's more or less the story of wal-mart, just a bit more simplified. But this point is proven long before 1818. Economics describes the actual mechanism at work here, you should learn a bit more about it.

Quote :

"What I said what that the belief that they are possible is required, not their actual existance."

But that's simply overextending certain cases. If I can make a profit by buying and selling something, I'll do it, regardless of the possibility of monopoly.

Quote :

"And like I've said repeatedly, sometimes they're the same thing."

If you go around calling every dog a golden retriever, sometimes, you will be right, but this in no way implies that every dog is actually a golden retriever. In the same way if you go around calling every rectangle a square, sometimes you'll be right, and if you say that monopoly is the driving force in capitalism, sometimes you'll be right, but that doesn't actually make monopoly the driving force behind capitalism, it has a parent force at work.

Quote :

"i was in class today thinking and this could be started so easily by simply adjusting the tax brackets to put everybody in a smaller range of incomes and slightly decrease that range each year to progress into communism"

Communism has more to do with the government ownership over all means of production than everyone making the same amount of money.

10/25/2006 10:13:19 PM

Quote :

"the us census bure row"

How did everyone miss this?

10/25/2006 11:13:18 PM

Quote :

"You're telling me that the only way to make money is to have a monopoly? I've made money selling things, and I certainly don't have a monopoly, that pretty much takes care of that."

The goods you were selling were in some way scarce. You didn't have a monopoly, but it damn sure was not perfect competition if you managed to charge more than mere compensation for your time.

Quote :

"But that's simply overextending certain cases. If I can make a profit by buying and selling something, I'll do it, regardless of the possibility of monopoly."

But the existence of a competent rival precludes you from making a profit by buying and selling something. Sure, market actors are making a profit right now, but if you enter you will spark a price war and everyone will be losing money, do you enter the market?

Any fierce competition might take years to work out, it would take tremendous profits in the distant future to compensate a competitor for entering this market, such profits are not readily available in a competitive market. As such, without the possibility of attaining a monopoly rational investors do not challenge entrenched competently run businesses.

Quote :

"sometimes you'll be right"

You know, like how I said "sometimes they're the same thing" and "sometimes" == "sometimes"

You just cannot imagine that investors are rational beings capable of planning beyond the immediate moment.

[Edited on October 25, 2006 at 11:59 PM. Reason : .,.]

10/25/2006 11:58:40 PM

Quote :

"You didn't have a monopoly, but it damn sure was not perfect competition if you managed to charge more than mere compensation for your time."

That's a concept known as market power. I'm pretty sure I've already explained that. And yes, on a few of them I did not make an economic profit. I sold them in hopes of making money, but monopoly was definately not my intention.

Quote :

"Sure, market actors are making a profit right now, but if you enter you will spark a price war and everyone will be losing money, do you enter the market?"

That's not how economics work. I'm not going to argue simple accepted economics concepts.

You're not arguing against me here, it's well known that in a perfectly competitive market economic profit is bid down to zero, ceteris paribus. No market is perfectly competitive in the real world, but the concept can still be used.

Quote :

"Any fierce competition might take years to work out, it would take tremendous profits in the distant future to compensate a competitor for entering this market, such profits are not readily available in a competitive market"

This is where oppurtunity cost is used.

Quote :

"You know, like how I said "sometimes they're the same thing" and "sometimes" == "sometimes""

The point is that "a way to make money" doesn't have an IS A relationship with "monopoly" the inverse however, is true.

Quote :

"You just cannot imagine that investors are rational beings capable of planning beyond the immediate moment."

No, that's simply not the way economics works. Economics doesn't take things like "what bill gates had for breakfast" or "if warren buffet stumped his toe". It's a model, it's not real life, it's much less complex. It works similar to statistics (but a bit less mathmatical).
But yes, economics does take into account future planning with things like oppurtunity costs.

And this isn't "my imagination", this is accepted economics, which you clearly have little understanding of.

10/26/2006 12:32:39 AM

I can see you simply cannot fill in any holes. I'm going to have to take you step by step down what should be a simple train of thought.

Quote :

"it's well known that in a perfectly competitive market economic profit is bid down to zero, ceteris paribus. No market is perfectly competitive in the real world, but the concept can still be used."

And what happens in a perfectly competitive market when firms have wrongly increased capacity above the optimal market demand? Profits are not bid down to zero, they are bid below zero; the sum total of all profits in the industry becomes a negative number.

Now, a real-world example, my teeth pulling friend. Imagine a railroad running from town A to town B. As is a function of a railroad, one operator can handle all the traffic demanded. However, as its only competition is horse-drawn carts it is able to charge rates in excess of its costs, pocketing large profits (you might call this monopoly pricing). Now, another investor has enough capital to build a second line and compete, but will they? Once their line is complete it is a function of the type of business (large fixed costs, low variable costs) that rates will crash and both businesses will be thrown into large losses (not covering fixed costs). Our investor knows this up front, but he also knows about the large profits afforded by the line outside of competition.

As such, as is shown historically, our new investor will build his railroad in an attempt to run the existing line out of business and claim the high profits for himself, but it would take years of fierce competition which may never end (both companies, in hopes of claiming high future profits, keep operating at a loss in perpetuity).

Now, if we artificially remove the monopoly incentive by instituting a price cap. If only one firm exists then our new investor will not build his line and prices remain equal to the cap: consumers suffer. If both firms already exist in a state of ruinous competition then they will both race to the door in an effort to recoup losses by scrapping the track/trains/etc until there is only one competitor.

This is why shortly before the railroad's rates were regulated over half the track in America was operating at a loss. Within 10 years of regulation this figure had dropped considerably (10% or so) and rates were markedly higher due to the loss of competition.

As the good marxist Kolko pointed out, the industry was not regulated to help the consumer but to prevent competition and rescue the profits of investors.

10/26/2006 10:13:58 AM

Quote :

"And what happens in a perfectly competitive market when firms have wrongly increased capacity above the optimal market demand? Profits are not bid down to zero, they are bid below zero; the sum total of all profits in the industry becomes a negative number."

Then in that case the opposite occurs. Rather than entering the market to bid profit down to zero, companies leave the market bidding profits up to zero. This is a really, really simple concept.

Quote :

"However, as its only competition is horse-drawn carts it is able to charge rates in excess of its costs, pocketing large profits (you might call this monopoly pricing). Now, another investor has enough capital to build a second line and compete, but will they?"

Economically speaking, and no other factors at play, yes if there is a profit to be made, firms will enter the market untill there isn't.

Quote :

"Once their line is complete it is a function of the type of business (large fixed costs, low variable costs) that rates will crash and both businesses will be thrown into large losses (not covering fixed costs). Our investor knows this up front, but he also knows about the large profits afforded by the line outside of competition."

This is a problem with capitalism known as "economies of scale". I've went into it extensively.

Quote :

"Now, if we artificially remove the monopoly incentive by instituting a price cap. If only one firm exists then our new investor will not build his line and prices remain equal to the cap: consumers suffer."

That's not neccesarily true. Let's look at the three cases assuming the firm sets the price at the cap.
cap > market equilbrium: Other firms will enter and bid the price down to the market price
cap = market equilbrium: Other firms will not enter, but doesn't matter because consumers don't suffer anyways
cap < market equilbrium: A market shortage will occur

I seriously don't even know what you're trying to argue here anymore. Monopoly isn't neccesary for the economy to function, only money is. Monopoly is a market failure.

10/26/2006 10:55:05 AM

Quote :

"cap > market equilbrium: Other firms will enter and bid the price down to the market price cap = market equilbrium: Other firms will not enter, but doesn't matter because consumers don't suffer anyways cap < market equilbrium: A market shortage will occur"

Only if the market actors are idiots. Now that I think about it, this is more complicated than I guess you can understand.

In case you want to think on this later to maybe grasp it, remember it has something to do with the type of business I am talking about: high fixed costs, low (almost negligible) variable costs. Remember your history, it was industries like these that marxists and socialists used to argue the failure of capitalism. One firm results in huge profits, two firms result in huge losses and bankruptcy.

[Edited on October 26, 2006 at 11:16 AM. Reason : .,.]

10/26/2006 11:15:27 AM

Quote :

"Only if the market actors are idiots."

No, they will tend to act in this way described by this system and it's relationships/

Quote :

"Now that I think about it, this is more complicated than I guess you can understand."

No, I understand it perfectly well. It's economics.

Quote :

"high fixed costs, low (almost negligible) variable costs"

This is economies of scale.
It is an economic concept, and the government tends to have to step into markets like this because capitalism does a poor job of handling them.

10/26/2006 11:49:40 AM

Quote :

"This is economies of scale."

No, no it is not. The smallest railroad has a similar cost structure to the largest.

Quote :

"It is an economic concept, and the government tends to have to step into markets like this because capitalism does a poor job of handling them."

This is the mistake so many people make. They see poor company profits and immediately conclude "Aha! Market failure! We need to fix it." But this is only true if the purpose of a nation's economy is to produce high company profits, which it is not. The purpose of business profits is to secure the goods and services demanded by the American people, not the other-way around. If a market configuration helps the customer and impoverishes some business investors, I think that is a fair result.

Regretfully the ICC didn't see it that way. competition and thus customers were sacrificed for company profits in the name of "fixing capitalism."

10/26/2006 12:05:31 PM

Quote :

"No, no it is not. The smallest railroad has a similar cost structure to the largest."

The large fixed costs cause economies of scale. This is another basic economic concept.

Quote :

"This is the mistake so many people make. They see poor company profits and immediately conclude "Aha! Market failure! We need to fix it.""

It has nothing to do with corprate profits. Where was that mentioned or even implied in my post?
The market failure is the inherent inability for competition to exist at a reasonable level in industries with large returns to scale.

10/26/2006 12:14:50 PM

Well, historically speaking, it did exist until the ICC started setting rates, in effect introducing price caps, which eliminated the incentive to compete that came from monopoly pricing, so competition in these markets ceased.

10/26/2006 12:20:28 PM

So can you agree with me that, without government, capitalism is ineffective in maintaining competition in markets with large returns to scale?

10/26/2006 2:17:55 PM

Kris, let me restate my sentence for you:
Well, historically speaking, competition did exist until the ICC started setting rates, in effect introducing price caps, which eliminated the incentive to compete that came from monopoly pricing, so competition in these markets ceased.

My point in all this was that competition was prevalent to the extreme before the government stepped in. Competition was the enemy, it was viewed as ruinous. But it was only ruinous for business, not society. Society benefitted from lower prices, companies suffered from ruinous competition. The NRA (FDR's National Recovery Administration) spent most of its time going after firms for setting prices too low, not too high. The National Aeronautics Board (NAB) which shut down in the 1980s was even more anti-competitive (it spent 95% of its time chasing down prices that were too low).

They did this for good reason. If you introduce a maximum price, then monopoly rewards vanish, so the incentive to compete vanishes, so you must make sure existing competitors stick around because you will never get new ones, so you also need a price floor. So, in order to abolish monopoly government must also abolish competition, as it did.

As such, if you are going to have competition then you should also allow monopolies.

10/26/2006 2:43:41 PM

Quote :

"Well, historically speaking, competition did exist until the ICC started setting rates, in effect introducing price caps, which eliminated the incentive to compete that came from monopoly pricing, so competition in these markets ceased."

And obviously if it happened at one point in history, it will always happen like that. Weren't we talking about logic earlier? There is no way you can breifly interpret some historic case and extend it as a model.

Quote :

"But it was only ruinous for business, not society. Society benefitted from lower prices, companies suffered from ruinous competition."

You don't really have this two sides here, businesses as an aggregate are part of society, if the producer of a service is exposed to monopsonus market power, society as a whole still suffers because goods are not correctly priced. Economic efficency is how accurately prices reflect the true value of goods, being too high or too low are both bad things.

Quote :

"If you introduce a maximum price, then monopoly rewards vanish, so the incentive to compete vanishes, so you must make sure existing competitors stick around because you will never get new ones, so you also need a price floor. So, in order to abolish monopoly government must also abolish competition, as it did."

This is simply wrong, and you have absolutely nothing (aside from a few poorly interpreted anecdotes) to support this idea which completely overturns the accepted mechanisms of economics. Firms operate on money, not monopoly. The prospect of monopoly is not reflected in the demand curve.

10/26/2006 3:23:14 PM

not gonna happen, too much greed too much corruption too much competition


these things can't be 'conditioned' away.... they are base forces of evolution in animals (competition and greed at least)

so, it will never happen successfully among a significantly large group, much less in the US or an entire country....

10/26/2006 3:34:57 PM

Quote :

"The prospect of monopoly is not reflected in the demand curve."

I wouldn't think so, seeing as "monopoly" is a reward granted to producers and the demand curve describes consumers.

Quote :

"to support this idea which completely overturns the accepted mechanisms of economics."

Bull Shit. The concept of self-interest does not overturn anything in economics. Sure, the simplistic model in your head doesn't allow for future planning but don't push your model's limitations on the field of economics.

[Edited on October 26, 2006 at 6:59 PM. Reason : .,.]

10/26/2006 6:59:24 PM

Quote :

"I wouldn't think so, seeing as "monopoly" is a reward granted to producers and the demand curve describes consumers."

Companies produce according to demand, not according to the possibility of monopoly.

Quote :

"The concept of self-interest does not overturn anything in economics. Sure, the simplistic model in your head doesn't allow for future planning but don't push your model's limitations on the field of economics."

No, the idea that companies strive to become a monopoly rather than to make money is simply not economics.

10/26/2006 10:23:03 PM

Quote :

"Companies produce according to demand, not according to the possibility of monopoly."

Not at all, companies produce according to their expectation of profit maximization. If you don't understand that firms are run by intelligent human beings capable of more than one formulaic response to a situation then I cannot help you. You forgot that your simplistic economic model is merely a descriptor of reality, not reality itself.

Quote :

"No, the idea that companies strive to become a monopoly rather than to make money is simply not economics."

Did you eat paint-chips as a child? I've said this three fucking times: Sometimes companies seek to make money by becoming a monopoly. Or is it your belief that companies that become monopolies often would make more money by having competitors?!?!?

[Edited on October 26, 2006 at 11:12 PM. Reason : .,.]

10/26/2006 11:11:12 PM

Quote :

"Not at all, companies produce according to their expectation of profit maximization. If you don't understand that firms are run by intelligent human beings capable of more than one formulaic response to a situation then I cannot help you. You forgot that your simplistic economic model is merely a descriptor of reality, not reality itself."

I've already stated that several times on this very thread. Reality is much too complex for us to descibe, so we deal with our model.

Quote :

"Sometimes companies seek to make money by becoming a monopoly."

Okay, sometimes companies make money by dumping waste in rivers, who gives a shit?

10/27/2006 2:03:12 PM

Obviously you since it is your contention that "Monopolies do not encourage competition" when I have demonstrated that under common circumstances they do.

"Firms do not enter industries to make monopolies."

All in all, I said awhile back that this mechanism was only important in certain industries (high fixed costs, little to no variable costs), so it is quite fair to ask "Who gives a shit." But it seemed like you were endlessly fascinated by this mechanism of capitalism (a whole page), so I gave you a tour.

10/27/2006 5:17:16 PM

To even see a thread like this saddens me.
To even consider communism...even in fun..just goes to show how little the understanding is on communism is this country.

My wife was born in Kaliningrad, Russia. The wall fell when she was 10.
She had an up-close and personal look at communism.

Let's talk about some of the better memories of her childhood.

One of the great pleasures was getting some chewing gum.
I am not talking all the time...maybe 3 times when she was a kid.
It was 3 Piggys gum. It was such a treat that she still remembers the name of the gum. It was the only kind of gum that they had in Russia.

Her father was a sailor. And when he was in ports in Africa, the sailors would get little containers of yogurt. And as we know, containers of yogurt has the little foil tops you peel off. Her father would go around and collect these foil tops (that had pictures of the fruit that was inside) to give to his children.
These were treasures. Other kids were so envious.

One last example of the fonder memories.
One of my wife's grandmothers was a manager in a Vodka factory. This was a VERY good job.
Vodka could be traded for almost anything. And this meant that there was fresh fruit at New Years. (Christmas was not celebrated.)

You may be asking why I would be talking about fonder memories of my wife's childhood to explain communism. I want you to look at what are considered treasures. Look at what the high points are. How many here would consider a life like that as sub-par? Yet this was considered upper middle class in Russia back then.

But there are also darker memories too. I will not beat you down with them. I will only name a couple.
My wife's mother became a Christain (Orthodox)
She would hide in her own home, in the closet, to read the Bible because to be caught with one meant death for the family.
This was not an idle threat either.
My wife's other grandmother was carried out of her home one night by the police. This was over 20 years ago.
They have never heard from her again. Nobody in her family knows why she was taken by the police and nobody knows exactly what happened to her.
And nobody dared to ask. This could mean them being carried away too.

These are my wife's memories. They are not at all uncommon from Communism.

And for any leftest whacko out there...do not even insult me with any ignorant rant about Bush doing these things.
If you really felt that way, you would not DARE post it because you would be terrified of being taken away one night by the police to never be seen again.

So who here still wants to entertain this as a possible way of life for yourself?

10/28/2006 1:23:48 AM

Quote :

"So who here still wants to entertain this as a possible way of life for yourself?"

Most of us agree that communism is inherently flawed and awful. Those among us that like the idea of communism know that the human race would need to be overhauled for communism to make sense.

But seriously, stories that Yakoff Smirnoff could tell are not serious arguments against communism in general. They're a specific instance of a form of communism that hasn't worked out. You have to attack the heart of the issue to make an argument that holds water better than a sieve.

10/28/2006 1:31:52 AM