Welcome to Keith's night. Don't cry, don't anyone in the
libertarian Institute. Here is Thomas soul on
monopolies and predatory pricing in his book.
Basic economics, a citizen's Guide to the economy.
One of the remarkable theories, which has become part of the
tradition of antitrust. Law is predatory pricing.
According to this Theory, a big company that is out to eliminate
its smaller competitors and take over their share of the market
will lower its prices to a level.
That Dooms the competitor to unsustainable losses, forcing it
out of business when the smaller companies resources run out then
having acquired a monopolistic position.
The larger company will raise its prices.
Not just a previous level but to a new and higher level in
keeping with its new monopolistic position.
Thus it recoups its losses and enjoys above normal profits
thereafter at the expense of the consumers, according to Theory
of predatory pricing. One of the most remarkable
things about this theory. Is that those who Advocate it
seldom even attempt to provide any concrete examples of when
this ever actually happened, perhaps, even more remarkable.
They have not had to do. So even in courts of law in
antitrust, cases Nobel prize-winning Economist.
Gary. Becker said, I do not know of
any documented predatory pricing case yet.
Both the A&P Grocery chain in the 1940s. s and the Microsoft
Corporation in the 1990s were accused of pursuing such a
practice in antitrust cases, but without a single example of this
process having gone to completion instead their current
low prices in the case of A and P and the inclusion of a free
internet browser in Windows software, in the case of
Microsoft have been interpreted as directed towards that end
though, not having actually achieved it since it is
impossible to prove a negative the Use company cannot disprove,
that it was pursuing such a goal.
And the issue simply becomes a question of whether those who
hear the charge choose to believe it.
Predatory pricing is more than just a theory without evidence.
It is something that makes little or no economic sense.
A company that sustains losses by selling below cost to drive
out, a competitor is following a very risky strategy.
The only thing that it could be sure of is losing money
initially whether it will ever recover enough extra profits.
To make the gamble pay off in the long run is problematical
whether it can do. So and escape the antitrust laws
as well is even more problematical and antitrust laws
can lead to millions of dollars in fines and/or, the
dismemberment of the company, but even if the would be
Predator manages to somehow overcome these formidable
problems. It is by no means clear that
eliminating all existing competitors will mean
eliminating competition, even when a rival firm has been
forced into bankruptcy. It's physical equipment and the
skills of the people who once made it viable.
Do not vanish Into Thin Air. A new entrepreneur can come
along and acquire both perhaps at a low distress sale prices,
for both the physical equipment, and the unemployed workers
enabling the new competitor to have lower costs than the old.
And hence, to be a more dangerous competitor able to
afford to charge lower prices or to provide higher quality at the
same price, Thomas ol than cites the example in 1833 of the
Washington Post purchase by Eugene Meyer bankruptcy can
eliminate particular owners and managers but it does not
eliminate competition in the form of new people who can
either take over an existing bankrupt Enterprise or start
their own new business from scratch in the same industry,
destroying a particular, competitor or even all existing
competitors does not mean destroying competition, which
can take the form of new firms being formed in short,
predatory. Thing can be an expensive
Venture with little Prospect of recouping, the losses by
subsequent Monopoly profits. It can hardly be surprising.
That predatory pricing remains a theory without concrete
examples. What is surprising is how
seriously that unsubstantiated theory is taken in antitrust?
Cases. Thank you for watching Keith
Knight. Don't try it on anyone in the
libertarian Institute.