Monday, June 8, 2009

Nathaniel Brandon on Monopolies

"The question is often asked: What if a large, rich company kept buying out its smaller competitors or kept forcing them out of business by means of undercutting prices and selling at a loss - would it not be able to gain control of a given field and then start charging high prices and be free to stagnate with no fear of competition? The answer is: No, it could not be done. If a company assumed heavy losses in order to drive out competitors, then began to charge high prices to regain what it had lost, this would serve as an incentive for new competitors to enter the field and take advantage of the high profitability, without any losses to recoup. The new competitors would force prices down to the market level. The large company would have to abandon its attempt to establish monopoly prices - or go bankrupt, fighting off the competitors that its own policies would attract."
Nathaniel Brandon, Common Fallacies About Capitalism

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