an anarchist
Your local loco.
I sure appreciate this site and the community. Y'all encouraging me to read a book I've put off reading for a couple years at this point.That is the very naïve argument of free market advocates. In reality, it doesn't work.
1. In many industries there is a high level of entry cost. Most wannabe competitors will shy away just from that.
2. Competing is not rational. The monopoly equilibrium is much higher than the Nash equilibrium. Even if there are multiple suppliers, it is economically favourable to co-operate (price-rigging) and form an oligopoly.
3. Every innovation destabilizes an existing competition model. Let's say one corporation found a method to cut production costs. It can now (and will) drive the competition into bankruptcy by lowering prices below the production cost for their competitors, becoming a monopolist.
The "invisible hand" is a fairy tale capitalists tell the uneducated, it is as real as the invisible dragon in my garage.
I believe I can provide theoretical counterarguments to the three points you listed. Again, it is all theoretical, but at least it will provide an alternate point of view to your points. I will use more of my own words, quotes in italics
1.
The issue raised here is the difficulty an entrepreneur would have breaking into an established market. If an entrepreneur has a spectacular business model, they can seek out "venture capital". Wealthy investors would rather invest their wealth rather than let it sit idle. In many cases, entrepreneurs are competing with the current incompetent firm or oligopoly in the same industry. An entrepreneur may also sell stakes of his company in order to make his creation.
2.
The issue raised here is the existence of oligopolies, which in turn can lead to price rigging through a concerted effort of companies of an oligopoly.
Firstly, in a truly free market, an oligopoly would be unlikely to form. Suppose that competing firms can agree on the fine details of their agreement with each other. Though it would be unlikely as more efficient members would likely resist any restrictions on their own production for the sake of the less efficient member firms. It is likely that at the earliest feasible opportunity, the more efficient firms would jump ship. Further, under such an arrangement, all the members will be tempted to "cheat" by either lowering their agreed upon prices or increasing their agreed upon production in order to gain a larger share of the market outside of the established agreement. Let's assume however an oligopoly forms without these issues. There is still the issue of outside competition. The purpose of an oligopoly is to increase the companys revenue for its services than they could otherwise earn. The higher prices, or lower production, they set, the more vulnerable they are to outside competition. Remember, we are in a free market scenario, entrepreneurs would not have all of these superficial restrictions imposed on them by the State.
The difficulties of coordinating efforts among independent firms, combined with the threat of outside competition, renders the consumer-unfriendly oligopoly an unlikely market arrangement. Oligopolies in the present day do exist. They act in an exploitative fashion. They do so by purchasing influence over the State. Only through the application of State-mandated price ceilings, price floors, regulations, occupational licensure, minimum wages, taxes, and even explicit grants of a monopoly, can a given oligopoly exploit the consumer. The State protects big corporations from market forces via legislation. This is something I'm sure we can find plenty of empirical evidence for.
What would happen if an oligopoly fixed prices by restricting production? Let's explore an oligopoly of rice producers who decided that they would make more money producing 100 tons of rice instead of their usual 200 tons. This is deemed predatory by economists because if the oligopoly had released 200 tons of rice, the rice would be cheaper for the consumer.
If 100 tons is more profitable, the oligopoly will adjust their production for future harvest. The excess resources that were used to make 100 tons of rice are now available for use in the production of other goods or services. There is no net loss on production. In fact, by reducing the overall output, there is a net gain in the production of wealth, as this will allow those resources to be funneled into more valuable parts of the economy, increasing the overall standard of living.
It should be noted that large firms or oligopolies in freed markets are likely to yield a positive effect for the consumer, otherwise, they would either dissolve or be out-competed by more agile newcomers. With more resources and capital goods at one's disposal, the easier it becomes to maximize the efficiency of productive output.
If these oligopolies are having too high prices or not satisfying consumers in any other way, in a free market, competition will take them down. There will be a large demand for an alternative if oligopolies are exploiting the consumer. These newcomers could potentially take the oligopoly's consumer base, reducing their profits, defeating the purpose of forming an oligopoly in the first place.
3.
The issue being raised here is that a large company can take advantage of its large capital, and price goods low so as to squeeze out the competition i.e. smaller businesses.
If a firm does this, theoretically they would raise their prices once all the competition has been driven off. Without State support of monopoly privileges, however, there is always competition, whether between firms in other industries or from potential future competition. It is never possible to price one's goods or services without taking into consideration, at the very least, the potential of future competing producers being attracted by higher selling prices.
Also, if a large company lowers its prices below the production costs of a smaller company, the smaller company can buy up its competitors' now cheap goods. The smaller firm can set on the goods until the larger company raises its prices back to normal. This defeats the purpose of starving smaller firms. Plus, this "predatory price-cutting" would offer, at least temporarily, a huge discount for consumers. The money saved will be divested into other parts of the market, increasing the consumer's standard of living. The large firm would be shooting itself in the foot if it tried to price cut to force out competition, in a free market environment.
invisible dragon