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Author Topic: free markets  (Read 3349 times)
drsevo@aol.com
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« on: October 10, 2012, 12:26:19 PM »

i just read an article from wordpress.com a couple of weeks ago concerning free markets . in the article , the author stated that free markets cannot exist in the real world , & even austrian economists do not believe free markets can truly exist . only misguided individuals believe in free markets he stated . the reason they cannot exist , in his opinion , are 2  1. in a truly free market , either competition would be so severe as to drive prices down so low that companies/individuals would be unable to make profits or 2. competition would drive out all competition that monopolies would ensue . what would be a good response to this kind of belief ?
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BobRobertson
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« Reply #1 on: October 10, 2012, 02:01:00 PM »

& even austrian economists do not believe free markets can truly exist .

An uneducated savage, trying to prove a point easily disproven by anyone who doesn't simply "take his word for it".

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1. in a truly free market , either competition would be so severe as to drive prices down so low that companies/individuals would be unable to make profits

An interesting assertion, but let me ask you: Are you going to do work that does not pay you what you need to do the work? No. You'd go broke trying.

And, just like that, there's less competition for that work.

The academic economists like von Mises will go into long detail about how, so long as there is no change in people's preferences, profits will eventually reach the same returns as interest rates, because otherwise it's not worth doing the work in the first place.

Second, did you notice the HUGE assumption there? That "there is no change in people's preference"?

Do tell, when has THAT ever happened? For example, back in 1995, Compaq stopped trying to compete on price, which it was losing to upstarts like Gateway and Dell. Compaq RAISED their prices by 24%, and said, "Ah, but this is a Compaq! This is Quality!" And it worked. Their sale units went down, but their profits went up.

People also have what is called "time preference". Figure out how to get the product to the customer sooner, and you can charge more. So FedEx and UPS can both exist, and compete, but they also serve different customers by focusing on what it is they do best.

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2. competition would drive out all competition that monopolies would ensue . what would be a good response to this kind of belief ?

There's that assumption that preferences don't change, again.

Have you ever heard of ITT? International Telephone and Telegraph?

In the early 1970s, ITT was one of "those" mega-international corporations that was going to do just as you suggest, get so big that they would take over the world. Exxon, ITT, IBM, GM, GE, etc, would so dominate their market segments that no competition would be possible.

So where are they now? Well, ITT is just plain gone. Last seen publishing non-English language phone books.

The fantasy is that "economies of scale" are infinite, and a small firm simply cannot compete with a huge mega-corp.

"Economies of scale" do not scale. Bureaucracy is inefficient, the larger the firm the more inefficient it becomes. Huge production facilities cannot be retooled to make the "new" models as rapidly as smaller facilities.

Niche markets are very profitable. Time preference, personal service, custom work, all pay very well. There are still buggy-whip makers, even after the invention of the car. There just aren't very many of them.

The reality about monopolies is that they require government intervention to prevent competition. For all those reasons, a monopoly simply cannot be self-maintaining unless, like every other business, it simply serves its customers better than anyone else. And even then, there will be people (like me with Linux) who will not use the dominant provider (Microsoft, Apple) just to be an obstinate cur.

Dominant firms get that way by satisfying their customers better than others. But customers cannot be retained without that constant innovation, that constant service. It is easy to just walk away from some company if I am dissatisfied, even if I have no reason at all to be so, and they cannot stop me.

That is the principle of the Sovereign Consumer. It is also utterly denied by Keynesians, who think consumers are mere automatons who will do what they are told.
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drsevo@aol.com
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« Reply #2 on: October 11, 2012, 08:54:19 AM »

thank you for your response bob . this article was written by a keynesian , whom believe themselves to be very intelligent , but i think lack logical thinking & intuition .
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JustSayNoToStatism
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« Reply #3 on: October 11, 2012, 09:36:54 PM »

Quote
1. in a truly free market , either competition would be so severe as to drive prices down so low that companies/individuals would be unable to make profits
That's what happens when people don't know what "profit" actually means. In order for no one to make a profit, it would mean that everything in the world is exactly as everyone would have it, given their resources at hand. Clearly this person has heard that competition drives down prices, but doesn't understand the human component of where that comes from. Any time you take something and turn it into something else that is worth more to you or someone else than the factors that went into it, you have a profit. As long as humans exist, profit opportunities exist. Shaping our environment to suit our needs is something that is characteristic of our species and will not stop.
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Hanzo
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« Reply #4 on: October 14, 2012, 05:20:22 PM »

2. competition would drive out all competition that monopolies would ensue . what would be a good response to this kind of belief ?
There would be so much competition that there would be, because of this competition, monopolies? I've never understood this line of thinking. It is impossible to compete with a monopoly, by definition.
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« Reply #5 on: November 02, 2012, 12:20:31 AM »

You asked for what a good response would be so I'll tell you. Do not say anything, just turn and walk away.

The individual concerned must learn to learn, before they can be taught.
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haxor
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« Reply #6 on: November 08, 2012, 08:52:44 PM »

This man seems also not to understand human nature. Regardless of what some say this is actually a good thing. Competition is in our nature and when it comes to monopolies and what not someone will always try to undercut a competitiors price or someone will always be creative enough to build a better product. Far as raw material, it will never be monopolized. These reasons are the very reason why many (liberals) always try to throw in regulations. seems they do not want to realize our human nature. Humans will always try to become better. One will create a product and sell it on the markets, then someone else will come along and try to build it better, cheaper, faster and become a competitor. Because of this standard of living raises higher and higher. All thanks to a free market and human nature of ambition and dedication. These are the bueaty of free markets. I agree, this person does not undersand "profits" as well.
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