Post by Thorax232 on Mar 19, 2013 12:15:06 GMT -6
Andrew Carnegie, for instance, almost single-handedly reduced the price of steel rails from $160 per ton in 1875 to $17 per ton nearly a quarter century later. John D. Rockefeller pushed the price of refined petroleum down from more than 30¢ per gallon to 5.9¢ in 1897. Cornelius Vanderbilt, operating earlier in the century, reduced fares on steamboat transit by 90, 95, and even 100 percent. (On trips for which a fare was not charged, Vanderbilt earned his money by selling concessions on board.)
To be sure, there are caveats, as there always are in history. For a time, Carnegie did support steel tariffs. Since he substantially reduced the price of steel rails, though, this political position of his did not harm the consumer. Other critics will point to the Carnegie and Rockefeller foundations and the dubious causes those institutions have supported. Their objection is irrelevant to the specific question of whether the men themselves, in their capacity as entrepreneurs, improved the American standard of living. That question is not even debatable.
Predatory Pricing
Dominick Armentano, professor emeritus of economics at the University of Hartford, surveyed scores of important antitrust cases and failed to uncover a single successful example of predatory pricing. Chicago economist George Stigler noted that the theory has fallen into disfavor in professional circles: “Today it would be embarrassing to encounter this argument in professional discourse.”
For one thing, a large firm attempting predatory pricing must endure losses commensurate with its size. In other words, a firm holding, say, 90 percent of the market competing with a firm holding the remaining 10 percent of the market suffers losses on its 90 percent market share. Economist George Reisman correctly wonders what is supposed to be so brilliant and irresistible about a strategy that involves having a firm — albeit one with nine times the wealth and nine times the business — lose money at a rate nine times as great as the losses suffered by its competitors.
The dominant firm, should it somehow succeed in driving all competitors from the market, must now drive prices back up, to enjoy its windfall, without at the same time encouraging new entrants (who will be attracted by the prospect of charging those high prices themselves) into the field. Then the predatory-pricing strategy must begin all over again, further postponing the moment when the hoped-for premium profits kick in. New entrants into the field will be in a particularly strong position, since they can often acquire the assets of previous firms at fire-sale prices during bankruptcy proceedings.
- Resource
{emphasis added}
See article for more on chains and real world theoretical situations.
To be sure, there are caveats, as there always are in history. For a time, Carnegie did support steel tariffs. Since he substantially reduced the price of steel rails, though, this political position of his did not harm the consumer. Other critics will point to the Carnegie and Rockefeller foundations and the dubious causes those institutions have supported. Their objection is irrelevant to the specific question of whether the men themselves, in their capacity as entrepreneurs, improved the American standard of living. That question is not even debatable.
Predatory Pricing
Dominick Armentano, professor emeritus of economics at the University of Hartford, surveyed scores of important antitrust cases and failed to uncover a single successful example of predatory pricing. Chicago economist George Stigler noted that the theory has fallen into disfavor in professional circles: “Today it would be embarrassing to encounter this argument in professional discourse.”
For one thing, a large firm attempting predatory pricing must endure losses commensurate with its size. In other words, a firm holding, say, 90 percent of the market competing with a firm holding the remaining 10 percent of the market suffers losses on its 90 percent market share. Economist George Reisman correctly wonders what is supposed to be so brilliant and irresistible about a strategy that involves having a firm — albeit one with nine times the wealth and nine times the business — lose money at a rate nine times as great as the losses suffered by its competitors.
The dominant firm, should it somehow succeed in driving all competitors from the market, must now drive prices back up, to enjoy its windfall, without at the same time encouraging new entrants (who will be attracted by the prospect of charging those high prices themselves) into the field. Then the predatory-pricing strategy must begin all over again, further postponing the moment when the hoped-for premium profits kick in. New entrants into the field will be in a particularly strong position, since they can often acquire the assets of previous firms at fire-sale prices during bankruptcy proceedings.
- Resource
{emphasis added}
See article for more on chains and real world theoretical situations.