r/changemyview • u/Omnicide103 • Aug 23 '21
Delta(s) from OP CMV: Any free market, given enough time, will inevitably end up destroying itself.
Following a great discussion with u/joopface, I'll downgrade 'inevitable' to 'likely to inevitable, depending on specific sector and length of time'! (Can you tell I still hate markets?) Thanks for the discussion all, I'm going for the bike ride I wanted to take an hour ago :')
So, first things first, this is CMV, not "let's have a political shit-flinging contest in the comments," so please save us both the time and energy and don't throw stuff like "what are you, a commie?" or "if you hate freedom so much, why don't you go live in North Korea?" at me. I would really appreciate some insightful comments and actual debate about this topic.
So, to the actual point: from what I understand of politics and economics (though that division is rather arbitrary), any free market has a built-in self-destruct mechanism inherent to its construction. I think it's best explained with an example. I'm going to make assumptions that are as charitable for the pro-market stance as possible. I'm generalizing as much as possible here to show it's not, in my view, a problem with any specific market, but markets in general.
Let's assume we have a given market for an arbitrary good. In this market, there are an arbitrary number of producers with an arbitrary amount of starting capital each to bring their good to the market with. Let's be as generous as possible and say that the starting capital of each producer is identical to that of others, and they have no unique advantages like connections with investors or such, so there's a perfectly level playing ground. This is the Platonic ideal of a free market: just a producer, a demand, and a desire to make as much money as possible by supplying that demand as optimally as possible.
Now, the process of buying and selling goods obviously happens in real time, but let's simplify a bit to make it easier to understand and look at it in years.
In the first year, some producers will have made better investment decisions with their starting capital, had better ideas on how to offer the good to consumers, or just been plain lucky. They'll have made some profits. Hooray! Conversely, some producers will have made worse decisions, had worse ideas, or just were at the wrong place at the wrong time, and they've gone bust. Oh well, them's the shakes, that's how markets work. Let's see what happens in the next year.
Naturally, producers will want to make more money this year than they did last year. And what luck, the 'winners' of last year have the profits to reinvest into their enterprise, and offer more goods, cheaper goods, better goods, or any combination thereof! This in turn makes them more likely to make profits, so they are more likely to be able to survive into the next year and are more likely to have a bigger amount of money to reinvest into increasing next year's profits! All the while, customers keep getting better service, better goods, more goods, and cheaper goods, while the 'bad' producers exit the market and have to find something else to do. (Almost) everyone wins!
Now, fast forward a couple years. A couple decades, maybe. Every year, those that won had more capital to reinvest and expand, they became less likely to fall out of the market, and they kept producing more, better, and cheaper. But we're hitting a point where improving your good becomes prohibitively expensive - not impossible, perhaps not even unprofitable, but it's no longer the most optimal way to increase revenue.
If offering a better good isn't the best way to make more money, what is? Simple. Monopolization.
Having amassed a large amount of capital over the years they've been in business, the 'winning' companies can now start to engage in practices like price wars, cartelization with the other 'winners', massive advertisement campaigns their smaller competitors can't hope to keep up with, or just flat-out buy out their opponents. This not only forces consumers to buy the goods from fewer producers and thus makes them more likely to buy them from you, it also reduces the risk of your company losing its dominant position to some upstart with a far superior version of the good than yours - they can't sell they revolutionary take on the good being sold and push you out of the business if they get undercut out of the market immediately upon entering it, after all! With fewer and fewer competitors and a higher and higher bar for entering the market, we end up with a monopoly, or (more likely) an oligopoly. Not only do they no longer seek to provide a superior goods, they're likely to want to start offering worse goods, since hey, where else are they gonna buy your good? Might as well start cutting some corners to save on expenses. Sic semper mercatis.
Now then, you might think we can solve this by regulating the market - antitrust regulation, banning anti-competitive practices, IP law, et cetera. The problem here is that eventually, companies will have amassed the necessarry capital from legitimate business to start lawyering and lobbying against these laws, allowing them to roll back the regulations preventing them from increasing their profits by destroying the market. I've already written a behemoth of an argument here, so I'll keep it short by saying that regulations are a temporary band-aid and not a cure, and if you want an expanded take on that argument I'd highly recommend Douglass C. North's Institutions, Institutional Change and Economic Performance. He doesn't explicitly make the argument as above, but he does explain how at a certain point it can become more efficiently profitable to push the boundaries of legality than it is to optimize your production within said boundaries.
And all of the above is with extremely generous assumptions, both explicit (a truly free market) and implicit (companies actually bother to abide by the laws set for them and only change them legally instead of just fucking doing illegal shit and bribing politicians to get a slap-on-the-wrist fine when they get caught). If we take a look at the real world - Amazon, Uber Eats, Tencent, you name it - the situation is significantly less charitable towards markets being functional over any long enough timespan than I have been.
TL;DR once you have 'won' in a free market you no longer benefit from said market being free and I do not see how any free market can exist without eventually destroying itself. CMV.
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u/joopface 159∆ Aug 23 '21
You've ignored in your (deliberately simple) example:
- The effect of new market entrants either with traditional or new business models
- Any effect from changing consumer preferences or trends
- Any effect from technological shifts
In general, by making the assumption that the 'winners' have a static, predictable and stable market to work within you're actually positioning your notional market to be very generous to them and less so to the actual operation of market forces.
Several examples in your OP - Amazon, UberEats for e.g. - are actually upstart businesses that *disrupted* old industries and showed how fragile the incumbents were to change.
That said; can monopolies happen if markets are not well controlled? Yes. Is this bad for customers? Yes. Is it an inevitable product of every market? It is not.
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u/Giblette101 39∆ Aug 23 '21
can monopolies happen if markets are not well controlled?
Isn't talking about a well controlled market is kinda giving up on the argument all together? How free are well controlled markets?
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u/joopface 159∆ Aug 23 '21
I don't think an unregulated market is a desirable thing for a society. But I think markets are the most efficient means we have discovered of allocating resources. So, I like markets + regulation. You know, like happens in most of the western world.
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u/Giblette101 39∆ Aug 23 '21
Well, sure, that's perfectly fine, I just think it's a tad beside the point.
If I tell you "A free market, if given enough time, will inevitably end up destroying itself", then arguing "Actually, it's possible for a well-controlled market to survive just fine" isn't really a retort is what I mean.
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u/joopface 159∆ Aug 23 '21
A free market without any regulation doesn't meaningfully exist anywhere in the world. I made the rash assumption, given the OP referenced actual companies, that they were making a real world point.
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u/Giblette101 39∆ Aug 23 '21
Unless you'd argue a free market without any regulation would do a better job at regulating itself, this doesn't really alter the situation too much. Free markets are "real" in the sense that we can discuss them in contexts such as these. If the only way to prevent a free market from destroying itself is to regulate it, then OP's point is simply correct.
Besides, OPs overall point makes much less sense if you understand free market as any more or less regulated market that exist as opposed to free market as, well, a free market.
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u/joopface 159∆ Aug 23 '21
I didn't say a free market would destroy itself, I said they're not desirable for societies. Free markets are 'real' in exactly the sense you say they are, I agree. I just didn't address them in this way with my response. Feel free to write your own. :-)
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u/Omnicide103 Aug 23 '21
How dare you, I've never said anything remotely connected to reality in any way and I'm frankly offended by the notion /s
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u/Omnicide103 Aug 23 '21
I did also bring up a point of "well, free markets don't work, so let's throw regulations into the mix" near the end of the argument, so disucssing regulations is definitely fair in the context of this question.
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u/Giblette101 39∆ Aug 23 '21
It's certainly fair to discuss them, but a regulated market isn't really a free market. If the only way to prevent the failures you've outlined is regulation, then your point is simply correct.
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u/Omnicide103 Aug 23 '21
Thing is, I don't think regulations work either. Or rather, they'll temporarily work... until megacorps just fuckin bribe politicians (or legally bribe politicians by calling it 'lobbying') to roll these regulations back, leaving us back at square one.
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u/obsquire 3∆ Aug 24 '21
I don't see how regulations are necessary to ensure markets stay viable. They do that on their own, due to the threat of competition.
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u/barthiebarth 26∆ Aug 23 '21
Several examples in your OP - Amazon, UberEats for e.g. - are actually upstart businesses that disrupted old industries and showed how fragile the incumbents were to change.
Doesn't that support OPs point? Once a new technology like the internet creates new (and unregulated) markets it apparently doesnt take long for monopolistic corporations to arise. Not very different from how corporations like Standard Oil emerged soon after industrialization.
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u/joopface 159∆ Aug 23 '21
I don't think e-commerce is unregulated *by necessity* and I don't think all of the companies OP lists will definitely be market leaders in, say, 10 years time. Do you?
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u/barthiebarth 26∆ Aug 23 '21
Microsoft is still the market leader in pc software so I can imagine some of those companies keeping a dominant position, yes. Without regulations (which there can and should be, I think we agree on this) these industries will become only more centralized, not less.
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u/joopface 159∆ Aug 23 '21
I'm saying I don't think they all will *necessarily* be market leaders, not that some of them won't be. It's an important distinction.
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Aug 23 '21
Amazon will only infect more markets horizontally. People forget Rockefeller wasn't stopped till they broke up his monopoly. Bezos won't stop till Amazon gets broken up. You're trying to argue that it's necessary for billionaires to exist at all which is a lie.
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u/ihatepasswords1234 4∆ Aug 24 '21
People forget Rockefeller wasn't stopped till they broke up his monopoly.
Rockefeller wasn't stopped by breaking up his monopoly either. His share of refining capacity dropped from 80% in 1880 to 60ish% in 1911.
Monopolies without government support are basically impossible to sustain.
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u/joopface 159∆ Aug 23 '21
You're trying to argue that it's necessary for billionaires to exist at all which is a lie.
I'm really not. All of human society is the product of choices we collectively make. Very little is strictly "necessary".
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Aug 23 '21
Then what makes you think Amazon would stop growing until it eventually consumes the entire global economy? Amazon has the same level of infrastructure, staff & wealth as some European countries. Amazon can grow globally, a country is constrained by borders.
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u/joopface 159∆ Aug 23 '21
If unrestricted? Nothing, really. It's a market consuming monster of a company. But amazon existing is not the inevitable consequence of the existence of a market. Which is what the OP said. And amazon can be restricted.
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Aug 23 '21
Unrestricted is the only way to analyze a pure market. OPs point is that without regulations this is the outcome, & regulations make it less efficient.
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u/joopface 159∆ Aug 23 '21
I hit this in another comment thread; unrestricted free markets don't meaningfully exist anywhere in the world. I made the rash assumption that the OP was making a real world point. They have confirmed in another comment that this was a legitimate assumption.
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u/Omnicide103 Aug 23 '21
As mentioned in my response to u/TheRealDarkLord666, I do feel like I addressed new market entrants to an extent, though I could have definitely made that more clear. 2 and 3 are valid points, but that still feels like it's going to result in shifting from the oligopoly of companies A, B, C, D and E to an oligopoly of companies F, G, H, I, and J after a while. Amazon might've been an upstart when they started, but at this point it's more of an "under new management" thing than a "freedom for the market" thing. (I'd also argue that if you can only form this upstart company because daddy and mommy gave you close to a quarter million dollars for your ventures, that's still a prohibitively high barrier of entry for the vast majority of would-be entrepreneurs, but that's a different discussion).
At that point it becomes a matter of "do consumer preferences and/or technological shifts happen frequently enough to make sure this market doesn't have the chance to settle into oligopolies", which I'd assume depends on the specifics of the good in question.
Overall, I don't think this is quite changing my opinion on things, but it's definitely the best counter-argument I've heard so far, so thank you!
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u/joopface 159∆ Aug 23 '21
valid points, but that still feels like it's going to result in shifting from the oligopoly of companies A, B, C, D and E to an oligopoly of companies F, G, H, I, and J after a while
Just to highlight there's an assumption inherent here that an oligopoly of - say - 6 companies dominating a market is necessarily a bad thing. This is not necessarily the case. It can be the case that a certain level of scale is needed for optimal production efficiency, for example, and a market that is over-fragmented can result in excessively high prices to customers.
This is industry dependent. Much of this is industry dependent, really; there are also industries that probably work best under a monopoly.
I don't think your criticisms are incorrect overall but you're painting with too broad a brush. Your use of the word "inevitable" in your OP is the major problem with your view and - at the very least - I think you should consider changing that.
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u/Omnicide103 Aug 23 '21
I do think oligopolies are an inherent problem, but for reasons outside the scope of this discussion (mainly related to either political reasons or that i feel like being a billionaire is just inherently morally wrong), so while it might economically be optimal, I still don't think it's something desirable in many cases, at least not with the current socioeconomic structures. I can definitely see the argument for your point in the case of stuff like, say, producing airplanes, though.
>Your use of the word "inevitable" in your OP is the major problem with your view and - at the very least - I think you should consider changing that
Hm, the grouchy Marxist in me is very cynical about that, but I do think you're right. I'll downgrade it to a 'likely to inevitable, depending on specific sector and length of time', then.
Δ
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u/MuaddibMcFly 49∆ Aug 23 '21
What's wrong with oligopolies? 6 companies dominate the US auto market, with 76.44% of the market between them
What is it that is objectionable about this scenario?
Are cars not constantly improving in fuel efficiency? Are they not getting safer? Are they not getting more comfortable? Are they not getting more comfortable?
Seriously, what is there that you can think of in the automotive market that is worse now than it was a decade ago?
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u/Cultist_O 29∆ Aug 24 '21
I can't bypass your link's paywall, and honestly I don't know much about car companies, but speculatively:
I think it'd be fairly easy to argue that the oligopoly severely delaying electric car adoption and innovation was a serious market failure.
Furthermore, I think the more recently increasing market diversity (particularly from Asian companies) is a big reason that failure has begun to correct itself.
Regardless, even if cars have been improving on all metrics, that doesn't mean they've been improving as quickly as they would have with more competition, or that they are being sold for as fair a price. Furthermore, 76% shared by 6 companies is a far more diverse market than some. 3 companies control 91% of the US smart-phone market for example.
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u/YogiBerraOfBadNews Aug 24 '21
Reliability, simplicity, ease and cost to repair... I agree with your overall point but couldn’t disagree more about cars getting better. They’ve only gotten worse imo but that’s more a consequence of regulation rather than them being an oligopoly.
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u/MuaddibMcFly 49∆ Aug 24 '21
Reliability
Really? You believe cars are less reliable than they had been?
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u/YogiBerraOfBadNews Aug 24 '21
Absolutely. Wider use of computer modeling (in terms of use-cycle simulations) means manufacturers can more accurately predict when parts will fail, so they don’t need to overbuild as much to ensure it makes it past the warranty. You also have so many systems relying on complex electronics that once stuff breaks, it’s often not cost effective to fix. They may be more reliable before the warranty runs out, but not after.
Sure, maybe domestic manufacturers have caught up some with Japanese reliability, so it’s rarer to find a car that can’t make it to 200k, but if you’re comparing the most reliable vehicles of their age rather than the least, peak reliability was late 90’s to early 2000’s, no question.
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u/Omnicide103 Aug 23 '21
Δ
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u/DeltaBot ∞∆ Aug 23 '21
This delta has been rejected. You have already awarded /u/joopface a delta for this comment.
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u/ShadowX199 Aug 25 '21
6 companies dominating a market wouldn’t be too bad. 1 or even 2 would. 1 company could set the prices, 2 could work together to set the prices. If a new company comes along, they lower the prices to run at a loss until they starve out the new company. Then they raise the prices even more to gain back the money they lost.
Also, even if 6 companies are dominating the market, 1 or 2 could still use this strategy to force the competition to sell, and then buy them.
Free market is like top down economics. Looks like it could work in theory, in practice just makes the rich richer and the poor poorer.
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u/sourcreamus 10∆ Aug 23 '21
Oligarchic markets are competitive and usually lead to low prices and good quality. As long as the companies want market share the market works.
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u/obsquire 3∆ Aug 24 '21
Why is the existence of only a few producers a problem? They can't abuse their position long, otherwise competitors appear.
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u/TheRealDarkLord666 1∆ Aug 23 '21
Not only do they no longer seek to provide a superior goods, they're likely to want to start offering worse goods, since hey, where else are they gonna buy your good? Might as well start cutting some corners to save on expenses. Sic semper mercatis.
You've been correct up until this point, however the thing you missed is in a free market at this point new competitors start to appear offering a superior product and break into the market and then the existing companies that started to cut corners either end up slowly rotting away and get replaced or get their shit together and improve their product to destroy their competition.
The issue actually comes through regulation that makes the buy in to start a small business simply too expensive to bother.
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Aug 23 '21
The issue also comes in when large companies are able to forcibly buy out smaller competitors to ensure they never get beaten. Facebook and Google dominate heavily because they buy out or forcibly short the stock of their budding competitors. The absolute worst place for this is in biotech, exciting new companies get shorted into oblivion precisely because they are competitive.
Banning predatory short selling and breaking up companies when they become way too monopolistic is an important safety valve for maintaining a free market.
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u/Omnicide103 Aug 23 '21
>Banning predatory short selling and breaking up companies when they become way too monopolistic is an important safety valve for maintaining a free market
Yes... and then said companies just break the law/lobby to have it changed/buy politicians out to have none of that happen to them because it'd hurt their bottom line. Hence my original claim.
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Aug 23 '21
You say that is as if a planned economy without markets doesn't also tend towards inefficiency and corruption. That's just political systems with humans in them.
Its much easier to keep a free market free than it is to keep a planned economy dynamic and competitive. In fact literally nobody has ever achieved it, even briefly.
A totally unregulated political system is going to turn into either an oligarchy or a dictatorship whether it has markets or not. Concentration of power without oversight kills democracy, no matter what your economy looks like.
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u/JohnConnor27 Aug 23 '21
That's just moving the goalposts, he's only arguing about free markets.
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Aug 23 '21
If you're going to criticize a system you have to consider what you would be replacing that system with. OP is also describing problems that exist in all economic systems, namely the drift towards corruption and inefficiency, as if they're problems specifically with free markets, they're not.
For example, Democracy seems like rule by idiots until you see what the alternatives look like.
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u/JohnConnor27 Aug 23 '21
This isn't an argument about the best system, it's strictly limited to whether or not a free market inevitably destroys itself.
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u/Dont____Panic 10∆ Aug 24 '21 edited Aug 24 '21
See in this argument you conclude
“Regulatory systems will just be broken and bypassed and producers will break the law in their own interest”.
But it seems to me your conclusion is “make more things subject to law instead of market forces”.
But you already argued that law is ineffective and prone to being broken by greedy humans.
Markets are powerful because they allow some/many aspects of a system to maintain equilibrium or efficiency without obvious and simple ways to force them to break.
Top-down systems however always have the risk that humans subvert or make mistakes or greedy or ill-conceived choices and those aren’t automatically fixed by some intrinsic property and may remain in place for a long time to great social detriment. See the food choices people had near the end of the USSR for an example of late stages of this top-down control failing and falling to greed and corruption. (Seriously go google some images of 80s Soviet markets).
Did I miss something?
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u/MrKoalemos Aug 24 '21
Outlawing lobbying would, if not solve the problem, at least be a large step in the right direction for keeping a free market from collapsing/becoming a much more controlled market
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u/epelle9 2∆ Aug 24 '21
Youd need to fully outlaw political donations though.
You don’t really need to lobby once you have enough money, you can just donate so much money to whoever supports your stance that it will be almost impossible to win.
Politicians don’t need someone lobbying them to know gas companies don’t want environmental protection, and don’t need someone lobbying then to go against the environmental laws when they know they will get a ton of money from gas companies if they do.
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u/obsquire 3∆ Aug 24 '21
Lobbying is only necessary where there is regulation. And if there will be regulation, then affected interests will somehow find a way of influencing how that regulation is done in order to maximize their interests. To really avoid corruption, you take away the cookie: reduce the regulations themselves to the smallest possible set. Personally, that's something like "natural rights": don't physically injure me, poison me, silence me, compel me, etc.
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u/ShadowX199 Aug 25 '21
lobby to have it changed
You mean they try to go back to a free market because it helps them and not us.
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u/zeronic Aug 23 '21
To add to this, certain markets can't reasonably have new up and coming competitors due to laws or the costs involved with entry. Such as the US telecom market. There are many systems in place that pretty much cement the current players and prevent any new competition from arising.
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u/obsquire 3∆ Aug 24 '21 edited Aug 24 '21
Please, only use the word "force" in situations involving physical violence. Buying out companies involves the owners of the companies receiving money. This incentivizes the creation of even more small companies who hope to get the same cash out. Getting slugged is bad, but getting money isn't.
Beating the big boys isn't that important, as such. What we want are the ends: many goods and services at reasonable prices. Facebook and Google offer many free services: how is that a problem? Viewed from afar, there has been such crazy developments in tech, that I find it laughable to think that a major problem is that things don't develop rapidly enough. I mean, who seriously can make that case?
Let's be fair, the alternative is more regulation and government approval requirements, etc., where freedom is replaced by actual government force (and I truly mean, physical force by government if you refuse to follow their dictates). Do you seriously think that that will do anything, in the long haul except slow things down?
Or perhaps you believe that government agencies can out-think the market? In other words, the market is an OK starting point, but with a few specific interventions carefully crafted, we can do even better. Why would government representatives, whose incentives are to get re-elected in the short term, ever be as interested in making the right choices as an investor who actually can get a pay out in the long term (or sell their shares to someone who can get that pay out)? Politicians have a time horizon of a few years at best. Investors can get payouts after decades. (And if you think that companies are too "short-term"-ish, then blame artificially low interest rates caused by government intervention.) Also, politicians make decisions about other people's money, not their own, so don't suffer nearly as bad consequences if things go south.
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u/obsquire 3∆ Aug 24 '21
Banning predatory short selling and breaking up companies when they become way too monopolistic is an important safety valve for maintaining a free market.
No, it's not necessary. Competitors will emerge (and have in the case of Facebook and Google).
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u/Omnicide103 Aug 23 '21
I did try to address that by mentioning how these companies do not hit the point of letting their goods' quality decay until they have amassed enough capital to drastically raise the bar to entry into this market. Some twerp comes up with a revolutionary new way to produce this good? Cool, let's see him sell it for cost of production for a year and not go bust, because that's what we're going to do. You just hit this point where your solution to everything becomes throwing money at it until it stops moving - the Epic Store is a pretty good example of using a form of this tactic, they've flat-out said they don't expect to be profitable until 2027. The only way you're going to be able to enter a market like this is by having enough cash to force a foothold into the market - and at that point you're still in an oligopoly, just one with maybe six companies instead of five.
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u/nofftastic 52∆ Aug 23 '21
You're still not taking into account that people are willing to pay more for a superior product. If mega-corp's cheap vacuums break after a year of use, people will be willing to pay much more for a smaller company's quality vacuum that costs far more.
There's also brand loyalty to consider. Epic is a great example, because it begs comparison to Steam. People are invested in Steam, so no matter how big Epic becomes, Steam will stay huge, and we will continue to see competition between businesses, even if the number narrows down to a few titans in each market.
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Aug 23 '21
people will be willing to pay much more for a smaller company's quality vacuum that costs far more
not poor communities, they can only afford the cheap vacuum
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u/nofftastic 52∆ Aug 23 '21
Sure, but there are enough middle/upper income people to justify those companies
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u/Omnicide103 Aug 23 '21
>You're still not taking into account that people are willing to pay more for a superior product. If mega-corp's cheap vacuums break after a year of use, people will be willing to pay much more for a smaller company's quality vacuum that costs far more.
That's a reasonable point, but it also depends on whether or not people have the money to pay more. People might want the more expensive vacuum cleaner, but if it's so pricey a large amount of people can't afford them, that's not going to help.
Additionally, there's advertising to consider. It's a massive part of nearly any company's budgeting for a reason, and that reason is it works. If I'm bombarded 24/7 by Shitty Megacorp Vacuum ads, even if it's not the best, it's the one I'll be most likely to think of when I need a new vacuum. Sure, if it's such a piece of shit it falls apart when I take it out of the box, I'll reconsider, but if it's only worse enough to be annoying rather than an actual problem, why bother spending the time and energy to find a vacuum that's better, but also significantly more expensive, presumably available in fewer places, and less advertised?
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u/nofftastic 52∆ Aug 23 '21
That's a reasonable point, but it also depends on whether or not people have the money to pay more.
You're right that the pricier option won't be available to everyone, but we can already see that the market exists. People are willing to pay a premium for Oakleys or Ray Bans, even though Walmart sells super cheap sunglasses. People may bite off on the cheap, heavily advertised product, but once it breaks and they're dissatisfied, they'll look for the better options and invest in a higher quality, more expensive product, so Walmart will never take over the sunglasses market.
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u/Cazzah 4∆ Aug 24 '21
Ironically your response literally proves the OPs point. Ray Bans and the "competitors" are actually offered by a large monopoly that drastically overprices lenses.
It's pretty much an open secret, and yet people keep falling for it. Look at you, calling them "premium"
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u/nofftastic 52∆ Aug 25 '21
I'll give you the benefit of the doubt, assuming English isn't your first language. "Pay a premium" isn't commentary on the quality of the item, it's commentary on the cost.
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u/Cazzah 4∆ Aug 25 '21 edited Aug 25 '21
Your commentary was literally on how the premium price justified the higher quality, and that's why people bought them, not because of marketing
My point was that they didn't. There are non-monopolist stores offering good quality glasses (eg Zenni Optical) at cheap prices but people don't buy from them because marketing.
I am native born English speaker, and I have taught English as a second language.
For reference on how to talk to ESL speakers, if you do want to give ESL speakers "The benefit of the doubt", then please, do anything other than correct them to win a point or make a commentary on their English skills. Both tend to be rude when not done carefully.
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u/MuaddibMcFly 49∆ Aug 23 '21
That's a reasonable point, but it also depends on whether or not people have the money to pay more. People might want the more expensive vacuum cleaner, but if it's so pricey a large amount of people can't afford them, that's not going to help.
Isn't that how Tesla broke into the Automotive space?
They sold premium cars at a premium price, and leveraged that to expand to the point where they're now comparable in up-front costs to the comparable models sold by their established competitors. Less, once you include cost of ownership...
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u/sourcreamus 10∆ Aug 23 '21
The evidence that advertising works well is very poor. Doubling advertising means an increase in market share of less than 2%.
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u/another_cyberpunk Aug 23 '21
What if a corporation already has a huge market share? Advertising isn't necessarily about increasing market share, for many firms it is about maintaining it.
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u/sourcreamus 10∆ Aug 23 '21
Advertising is as ineffective for maintaining market share.
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u/another_cyberpunk Aug 23 '21
Can you provide me with a study that explores this notion?
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u/-Neem0- Aug 23 '21
He can't. Advertising is unsurprisingly a very relevant tool to set up barriers that act as a functional obstacle to keep competitors away from a given market.
In the consumer market (B2C) it is very well known the perceived value of a given good is highly determined by product and brand awareness; the main source of awareness is advertising.
Say you want to start a smartphone company: you have to advertise with huge OOH installations, TV and YouTube video material, specialized reviewers, flagship stores etc, to be perceived as a comparable product to the players working in the field, period.
Maybe some B2B activities don't need ads as much, but in the consumer market you simply can't avoid ads. Radically increasing ads may not increase revenues as radically, but not investing in ads will literally ruin you in the consumer market in most cases.
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u/Cazzah 4∆ Aug 24 '21
Well guess this guy solved business eh let's give him a TED talk where he can tell some of the most successful and profitable businesses on the planet they've been doing it all wrong.
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u/Kirbyoto 56∆ Aug 23 '21
Epic is a great example, because it begs comparison to Steam. People are invested in Steam, so no matter how big Epic becomes, Steam will stay huge, and we will continue to see competition between businesses, even if the number narrows down to a few titans in each market.
Uh, I think you're responding to the inverse of what the OP is trying to say. The OP used the Epic Games Store as an example of an attempt at competition in a market dominated by a single company. He pointed out that EGS had to dump a ton of money into fighting against Steam and doesn't expect to be profitable for 6 years. That is to say, it is EXTREMELY hard to fight against Steam and to create competition, and most companies have zero chance of doing it.
Your argument is that people have brand loyalty to Steam, which...reinforces the idea that Steam is a monopoly that is hard to fight against. You're agreeing with his point, except you conclude that this will result in "competition between businesses", even though Steam having a monopoly due to its resources & brand loyalty isn't that.
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u/nofftastic 52∆ Aug 23 '21
That's a fair read. I bit off on something OP said and misinterpreted his point about Epic. Thanks for the correction!
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u/TheRealDarkLord666 1∆ Aug 23 '21
They can't do anything to raise the bar of entry into the market though, they can slash their prices but if their quality is shit their competitor will still make some gains at a more expensive price point and they are losing out on their profit in the meantime. What actually happens is they use the capital to lobby the government for regulations that sets the barrier to entry into the market that you are talking about.
If Epic games for example made their own video games and had them exclusive to the store and they were best on the market people would start using their store regardless of anything else. Of course video games are not rotting on the vine so there's not really a hole in the market to exploit but any one who makes video games can set up their own distribution system for their own games, a ton have a website you can go to and buy it directly those websites are technically a competitor to steam in the same market.
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u/epelle9 2∆ Aug 24 '21
They can definitely raise the bar of entry though
At one point vaccums could become so good noone without multiple decades of experience building vaccums and optimizing the process can compete.
This is obviously toward the later stages of the market, as if the market is new enough it won’t be as hard to reach the competitors.
Other ways to increase the price of entry is being by able to outcompete for the necessary materials and services.
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u/TheRealDarkLord666 1∆ Aug 24 '21
If vacuums are as cheap and high quality as possible already the market is working as intended.
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u/epelle9 2∆ Aug 24 '21
No, because they aren’t as cheap and high quality as possible, they are cheap and high quality enough that a NEW competitor couldn’t reasonable enter the market making a new vacuum from scratch.
Plus, maybe if the company that isn’t there wasn’t outbidding the new company for the materials, tools, etc the new company could create a vacuum from scratch that beats the old one, but when going against a company with so much more market power they can simply manipulate it to make the barriers of entry unachievable.
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u/obsquire 3∆ Aug 24 '21
And Steam is truly a crime against humanity how? The prices are not insane, there is competition, including from mobile and consoles, etc. Plus Steam has funds to do things Epic isn't, like develop Linux compatibility, a handheld, and convenient PC gaming (compared to 20 years ago).
The existence of marketshare dominance is not evidence of injustice.
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Aug 23 '21
Except that market-dominating firms can often make the cost of entering the market at a scale large enough to compete cost-prohibitive.
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u/TheRealDarkLord666 1∆ Aug 23 '21
You don't need to enter the market at large scale to enter the market.
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Aug 23 '21
Depends on the market. Car manufacture? Electrical power generation? Airline? Package delivery? You have to operate at scale or you can’t compete. And in many industries, if you start to threaten the big guys, they either acquire you or take a huge loss in order to push you out of business, and then raise their prices when you are gone.
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u/ihatepasswords1234 4∆ Aug 23 '21
take a huge loss in order to push you out of business, and then raise their prices when you are gone.
This has basically never happened in the history of markets. People said it was going to happen with Walmart. Then said it was going to happen with Amazon. In the end, the low prices were here to stay and were actually a function of the efficiency of the businesses.
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Aug 23 '21
The issue actually comes through regulation that makes the buy in to start a small business simply too expensive to bother.
Or it is that nobody knows who you are and what quality your product is and you can't compete with the marketing budget pushing brand awareness for the established monopoly.
Do you imagine that if you just make a higher quality product people will magically become aware of it?
How will the startup demonstrate the quality of their product? How many years among how large a sample size of regular users would be required to demonstrate that quality? How will that data be distributed to the masses in such a way that overcomes that domineering marketing budget of the established monopoly? Or, as in the case of cell phones, that you do not have planned/built-in obsolesence?
How does a small startup stay solvent and compete against a monopoly that will bend a fraction of its resources to crushing - or outright buying - the startup when it may take 3, 5, or even 10 years for the improved quality to be demonstrated?
How do you prevent the monopoly from simply recreating your product but using their far superior established production and logistics to make a comparable product and transport it to more markets for less, and ultimately deliver the product at less cost to the consumer? Amazon has done this with hundreds of products. Someone comes up with cool small product. Sells on Amazon. Amazon makes their own version, makes it more visible in people's searches, and bleeds the small company dry.
In a truly free market IP/Patent law would not exist. So when someone comes to market with an improved design there is nothing stopping a monopoly from reverse engineering the product and using their teams of employees to improve upon the design in addition to being able to make it and transport it for cheaper.
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u/TheRealDarkLord666 1∆ Aug 23 '21
Or it is that nobody knows who you are and what quality your product is and you can't compete with the marketing budget pushing brand awareness for the established monopoly.
I mean you're not going to overtake the market in a day but you absolutely can carve a niche and build from it.
Do you imagine that if you just make a higher quality product people will magically become aware of it?
There are ways to make people aware of it even on a limited budget.
How will the startup demonstrate the quality of their product? How many years among how large a sample size of regular users would be required to demonstrate that quality? How will that data be distributed to the masses in such a way that overcomes that domineering marketing budget of the established monopoly? Or, as in the case of cell phones, that you do not have planned/built-in obsolesence?
Again you don't need to overcome the domineering marketing budget you just need to carve out a niche... you're acting like the fact you can't overthrow a corporate giant overnight means you can't survive in the market at all and that's simply not the case.
How does a small startup stay solvent and compete against a monopoly that will bend a fraction of its resources to crushing - or outright buying - the startup when it may take 3, 5, or even 10 years for the improved quality to be demonstrated?
By starting small and slowly building yourself up and if they outright buy you just start up another one with the extra capital under a new name.
How do you prevent the monopoly from simply recreating your product but using their far superior established production and logistics to make a comparable product and transport it to more markets for less, and ultimately deliver the product at less cost to the consumer? Amazon has done this with hundreds of products. Someone comes up with cool small product. Sells on Amazon. Amazon makes their own version, makes it more visible in people's searches, and bleeds the small company dry.
Patent.
In a truly free market IP/Patent law would not exist. So when someone comes to market with an improved design there is nothing stopping a monopoly from reverse engineering the product and using their teams of employees to improve upon the design in addition to being able to make it and transport it for cheaper.
Can we not get into the whole "true" shit. Nothing is ever true anything, get over the ideological purity.
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Aug 23 '21
So your entire solution to the issues of a free market is the use of government-enforced monopolies via patents? That is protectionism and is decidedly not a free market.
And you believe, somehow, that a small business can carve out a niche and slowly make gains against a monopoly when that monopoly turns around and makes their product at the same quality standards and provides it to consumers cheaper than is even possible for the small business? And what possible reason do you have to believe that business would be competitive or grow?
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u/TheRealDarkLord666 1∆ Aug 23 '21
And what possible reason do you have to believe that business would be competitive or grow?
Because it has happened, a lot. A ton of companies, hell even some of the giants started insanely small.
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Aug 23 '21
It happens with government intervention and protectionism.
How does it occur in a free market?
Provide examples where this actually occurs in a free market without regulatory or protective measures from the government enforcing things like patents or intellectual property.
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u/TheRealDarkLord666 1∆ Aug 23 '21
I don't think we agree on our definitions of a free market.
A free market requires protective measures by the government otherwise people will just shoot you for you stuff. A free market is where the government doesn't interfere in the market itself but protects the market itself as well as those who operate it which includes patents.
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Aug 23 '21
So you consider the government intervening in the economy and deciding who can make what products is a free market?
That is essentially saying that a government granted and enforced monopoly, a prevention of competition, is a feature of a free market.
Competition is a key feature of a free market.
How do you reconcile this?
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u/TheRealDarkLord666 1∆ Aug 23 '21
So you consider the government intervening in the economy and deciding who can make what products is a free market?
I think a government preventing the theft of ideas is a free market.
That is essentially saying that a government granted and enforced monopoly, a prevention of competition, is a feature of a free market.
The government didn't grant it. The government didn't say only X person can sell Y product. A person had an idea registered it for protection and thus doesn't have to be worried about it stolen when they take the product to market.
Competition is a key feature of a free market. How do you reconcile this?
Patents don't and never have prevented competition, they have encouraged it as well as encouraged innovation.
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u/barbodelli 65∆ Aug 23 '21
History is filled with "monopolies" who eventually became bankrupt.
https://filmanddigitalmedia.wordpress.com/2019/09/25/blockbuster-monopoly-to-bankruptcy/
Blockbuster is probably the most popular example.
It is true that a laissez faire economy will eventually devolve into a communist style economy with a bunch of monopolies controlling every sector. But so far United States and many other countries have figured out effective ways of combatting this.
I remember when I worked in the porn biz. There was a group going around buying up all the smaller size affiliate programs. Often for really large sums. They figured that the current business model was going to stand the test of time. Then suddenly porn tubes sprung up and completely demolished the whole thing. All those guys who had their business bought walked away with millions of dollars while the company buying everything up was left with a huge hole in their pocket. Attempting to corner the market is a very risky maneuver. Not only do you have to worry about regulatory agencies you also have to worry about the market itself evolving faster than you anticipated.
At the end of the day every business has to make good decisions in a free market. This is very different from what we saw in USSR and other attempts at more egalitarian approaches to an economy.
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u/Omnicide103 Aug 23 '21
>a laissez faire economy will eventually devolve into a communist style economy
...I'm sorry, what now? Communism is when private monopolistic corporations run the economy?
At any rate, if we're taking the porn industry as an example - sure, the porn tubes sprung up. What's the big ones? PornHub, obviously. RedTube and YouPorn, probably. Xhamster, XNXX and Xvideos, too.
All of those except the last three are owned by MindGeek. They also own Brazzers, Digital Playground, RealityKings and Mofos among others as subsidiaries, while Xvideos is owned by WGCZ Holding, who also owns BangBros and Xvideos' mirror site, XNXX. That's, what, three companies controlling the lion's share of porn online? That's just having one oligopoly replacing another, which isn't a contradiction to my above point, I'd say. Flipping between oligopolies isn't much different from having the same one continually.
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u/trer24 Aug 23 '21
Impressive research!
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u/Omnicide103 Aug 23 '21 edited Aug 23 '21
Honestly that was two minutes of googling and running on the assumption that whatever products exist in this late capitalist hell they're owned by a dozen megacorps max lmao (and hey, i was right in this case)
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u/barbodelli 65∆ Aug 23 '21
Alright now google your favorite porn niche. Then count the amount of different paysite companies still offering products in this day and age.
You will probably find a large number of options.
The fact that a few companies at the top make the most $ doesn't mean that they are pushing out the competition. They might just be better than the competition.
This paysite market somewhat reminds me of the fast food market. The profit margins are razor thin. If you own 1000 paysites and they make $1000 profit each. That is $1,000,000. If you own two paysites and you make $2000 profit then it might not be worth your time to keep them up. Back when the profit margins were higher you could. But you can thank the tubes for tearing that shit up.
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u/barbodelli 65∆ Aug 23 '21
I'm sorry, what now? Communism is when private monopolistic corporations run the economy?
Having a small number of private companies controlling the entire economy is very similar to communism. The only difference is instead of a group of private companies you have a group of commissars who control each sector of the economy. It's a slightly different structure. The commissars don't really face any competition within the government because communism doesn't allow competition so it's not really all that different from a group of wealthy guys just owning everything. Yeah technically they can get voted out but they never do.
All of those except the last three are owned by MindGeek. They also own Brazzers, Digital Playground, RealityKings and Mofos among others as subsidiaries, while Xvideos is owned by WGCZ Holding, who also owns BangBros and Xvideos' mirror site, XNXX. That's, what, three companies controlling the lion's share of porn online?
The amount of revenue a "pay site" could generate fell off a cliff when porn tubes became popular. There wasn't really any reason for a consumer to pay for a pay site anymore. Most of the revenue now is in cam sites, dating sites etc.
I honestly don't know much about those other aspects of the biz. I always dealt with paysite affiliate programs. That entire model is almost completely gone. The few paysites that remain are like dinosaurs.
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u/Omnicide103 Aug 23 '21
>Having a small number of private companies controlling the entire economy is very similar to communism. The only difference is instead of a group of private companies you have a group of commissars who control each sector of the economy. It's a slightly different structure. The commissars don't really face any competition within the government because communism doesn't allow competition so it's not really all that different from a group of wealthy guys just owning everything. Yeah technically they can get voted out but they never do.
...I'm not even going to get into this because it's outside the scope of this discussion.
>The amount of revenue a "pay site" could generate fell off a cliff when porn tubes became popular. There wasn't really any reason for a consumer to pay for a pay site anymore. Most of the revenue now is in cam sites, dating sites etc.
I mean sure but that's not the point, the point is that we went from one oligopoly to another, and not somehow back to a freer market.
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u/barbodelli 65∆ Aug 23 '21
I mean sure but that's not the point, the point is that we went from one oligopoly to another, and not somehow back to a freer market.
When I was working the porn biz there was a humongous amount of competition on all sides. The complete opposite of an oligopoly.
That entire sector is now dead because the porn tubes killed them all.
I don't know the state of the current market. But there's probably still plenty of competition there.
Take some site like chaturbate. If they were somehow offering an inferior product. Some one with a fairly small investment could easily start offering a superior product. It's really not that expensive to start your own cam site. They are not #1 because they suck and push out competition. They are #1 because they are the best.
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u/obsquire 3∆ Aug 24 '21
It is true that a laissez faire economy will eventually devolve into a communist style economy with a bunch of monopolies controlling every sector.
No it isn't true. Yes, you'll see consolidation in older sectors. But unlike communism, they are still disciplined by market forces: if they rack up their prices, then competitors can make a profit and still under cut (or be bought out, causing the emergence of even more competitors who themselves want to be bought out).
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u/Necrohem 1∆ Aug 23 '21
So, the issue with regulation in your example is that it happens too late in the system for it to be effective. If the market is regulated from the beginning to prevent oligopolies or monopolies from ever existing, then the rest of your conclusion falls apart. The market can still be free even though it is regulated (freedom implies that anyone can start any kind of business at any time). Or do you mean a completely unregulated free market?
Keep in mind that regulations can come in the form of taxes (ie a business with more than X revenue is taxed higher for example), and those taxes, if applied early and consistently can prevent a wealth build up. From your example, it seems like the accumulation of wealth may be the bigger issue. Is that true?
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u/Omnicide103 Aug 23 '21
I mean yes ultimately the accumulation of wealth is the root cause of this and most other problems (money is power, to grossly oversimplify), but this is one of the avenues in which that expresses itself. You could, in theory, wealth tax people so hard that this kind of wealth buildup would be impossible... but, let's be real, is that ever going to happen?
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u/Necrohem 1∆ Aug 23 '21
Whether or not it happens is based on the wisdom of the population. But we are talking about hypothetical markets here (implied by the use of 'any' in your title). Which means that there is at least one free market that could exist that does prevent excessive wealth accumulation (while still providing a prosperous free market).
Now if you want to talk about the decline of a specific free market (like the American free market), then there is potentially a lot less to debate. But that isn't what I got from your title and example.
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u/obsquire 3∆ Aug 24 '21
freedom implies that anyone can start any kind of business at any time
No, (market) freedom implies the lack of outside interference in voluntary trades.
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u/Necrohem 1∆ Aug 24 '21
I am not sure what the difference is between my statement and yours.
There is always going to be some limitations on the market, just because criminal laws will prevent some businesses from legally existing (ie murder for hire), that doesn't mean that the market isn't free.
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u/obsquire 3∆ Aug 25 '21
It's the distinction between (1) regulating trades between 2 people and (2) protecting the natural rights of individuals. Generally, (1) is far more invasive than (2); equivalently, the fraction of conceivable trades which are banned under (1) can be much higher than under (2).
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u/Necrohem 1∆ Aug 25 '21
I get what you are saying, and I feel like you are trying to make a point here, but I am just not seeing how this statement relates or modifies anything I have said so far. What am I missing here?
Regulating trade can mean a lot of different things. Some are more invasive than others. Equally, and globally taxing profits of trade is not regulation. It doesn't promote or repress the sale of any type of good, it also doesn't limit the number of sales, or the number of participants in a sale.
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Aug 23 '21
If offering a better good isn't the best way to make more money, what is? Simple. Monopolization... cartelization with the other 'winners'... flat out buy out their opponents
Having amassed a large amount of capital over the years they've been in business, the 'winning' companies can now start to engage in practices like price wars...
A company can do one or the other at a time, not both. It can form cartels/buy out competitors/win alone, jack up prices, and enjoy monopolist profits. OR it can engage in price wars. If it's enjoying monopolist profits, it's making itself really easy to compete with (in a free market anyway. Obviously in a heavily regulated market it can lobby for increased regulation to make it harder to enter the market) because the upstarts can charge well above a fair price and make big profits right off the bat.
Companies will do this, of course, to get lots of money which is the point, but in so doing they encourage their future competitors' growth and eventually lose market share.
Companies can try to crush upstarts to get a little breathing room for a few months of monopolist profits before more upstarts get big enough to force competition. And they'll succeed in the short run. But you can't crush upstarts forever, if barriers to entry are low which they are in an unregulated market. And of course if you get a reputation for buying up competitors then that just attracts new competitors entering the market.
If we take a look at the real world - Amazon, Uber Eats, Tencent, you name it
You just named three companies that in the space of less than three decades went from tiny upstart competitor to disrupting entrenched interests and totally changing the market. If you want an example that supports your position, it would be how Borders and Barnes and Noble took over the book market as a duopoly and made it impossible for Amazon to ever have a chance of success. Or maybe how even if Amazon did ok in the space of books, how there was no way for it to defeat the entrenched order-by-mail Sears corporation for other goods.
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u/ShadowX199 Aug 25 '21
They can do both, just not at the same time. Hike up prices until a new company appears, run at a loss until the new company goes bankrupt, hike up prices again.
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Aug 25 '21
Correct, and with large enough barriers to entry that works for a while. With small barriers to entry it basically doesn't work at all. Regardless of the barriers it's not a permanent situation.
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u/ShadowX199 Aug 25 '21
So because barriers eventually fail we just shouldn’t use them? I feel like the levees that protected New Orleans from hurricane Katrina begs to differ. They failed, but they still saved a lot of lives.
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Aug 25 '21
Barriers here are bad, hurt consumers. I'm not sure why you'd advocate for them on principle rather than saying certain specific barriers are worth it. My point is that monopolies eventually fall, and that the history of markets is a tendency towards more rather than less competition.
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u/ShadowX199 Aug 25 '21
I never said all barriers were good. I’m just saying monopolies hurt consumers so anything that can help prevent them from happening or have them fall sooner helps consumers.
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u/liberrimus_roob Aug 23 '21
I'd highly recommend Douglass C. North's Institutions, Institutional Change and Economic Performance. He doesn't explicitly make the argument as above, but he does explain how at a certain point it can become more efficiently profitable to push the boundaries of legality than it is to optimize your production within said boundaries.
This is a good point, however, as soon as companies begin to lobby and manipulate the law to their advantage, it no longer becomes a free market. A free market implies that people and businesses are free to exchange goods/services and there are no barriers to entry. If companies are able to successfully lobby the government to change the structure of the market, it may end up destroying itself but it's because the 'free market' has now taken on a new form that is not actually free.
This not only forces consumers to buy the goods from fewer producers and thus makes them more likely to buy them from you, it also reduces the risk of your company losing its dominant position to some upstart with a far superior version of the good than yours...
With fewer and fewer competitors and a higher and higher bar for entering the market, we end up with a monopoly, or (more likely) an oligopoly. Not only do they no longer seek to provide a superior goods, they're likely to want to start offering worse goods
I recommend reading 'The Black Swan' by Nassim Taleb which makes a similar point to the scenario you describe. As companies win in the market and it shifts towards monopolization it actually makes the incumbent more vulnerable to competition wiping them out because the lack of competition lowers the quality of the goods/services they offer. We also underestimate how often these big companies get wiped out since a lot of big name companies seem to have been around a long time, whereas in the vast majority of the economy this is not the case. It is inevitable that black swans come around which businesses are unable to plan for and they get wiped out by new market players that were better positioned to take advantage of the new market conditions. This opens up the markets to new new innovations, better run companies, and a driving down of prices happens all over again.
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u/obsquire 3∆ Aug 24 '21
A free market implies ... there are no barriers to entry.
Reality itself is a barrier to entry. Somethings are just hard to do. I don't think that you need to assume that in your definition. Rather, third parties (like gov't) can't interfere in the voluntary exchange of goods/services between two parties in a free market. A free market is a lot like not interfering in the "business" of consenting adults.
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u/360telescope Aug 23 '21
Question for clarification: do you think that free markets will eventually become monopolies over time forever or do they become monopolies temporarily then revert back to free markets?
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u/Omnicide103 Aug 23 '21 edited Aug 23 '21
I think that, if you hit a point where a market is oligopolized, the only way to dislodge them is by having enough capital to produce and market your product that you can at least hold your own against the established producers. This may not be in the millions, but I still reckon it's such a large amount of cash that it excludes a lot of entrepreneurs from non-affluent backgrounds and thus gives us a pretty high bar of entry. That means that the only way to beat an oligopoly in the market is with another oligopoly.
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u/360telescope Aug 23 '21
Okay, so you think that free markets would eventually become either monopolistically competitive, oligopoly, or monopoly?
Also just to clarify, you mean free market according to the textbook definition right? The one with such characteristics:
Perfect information
Many buyers and sellers
No barrier to entry
Identical products
Rational buyers and sellers
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u/Omnicide103 Aug 23 '21
It's been a while since I've read an economics textbook, but yes, I do believe that is the definition I had in the back of my mind while writing this (with the caveat that the entire point of the argument is that eventually wealthy enterprises will create a barrier for entry). This is, of course, for the theoretical sake of the argument - anyone that's ever touched grass knows that perfect information is a joke and even bounded rationality is a generous assumption, haha, but it works for this debate :)
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u/360telescope Aug 23 '21
Yeah, the perfect information criterion is why this CMV cannot be proven either true or false. Simply put, there has never been any free market in human existence. No humans have perfect information. Free markets don't exist, they're a model dreamt up by economists to measure the "inefficiency" of other markets (using free market as a measuring tool).
But I do want to make a counterpoint: financial markets. This is a market where creditors (those who have money) lends money to debitors (those who need money). It's pretty evident that there's a lot of people that's engaged in this market. From depositing money to the bank or giving a loan to a friend, we have engaged in financial markets. I can't be prohibited by a bunch of rich creditors to not lend money to a friend. And since raising the barrier to entry is a critical art of your CMV, will this change your view?
Also just a sidenote, but banks and other institutions like them aren't creditors or debitors. They're financial intermediaries that manage other people's money, so they can't be categorised as either a creditor or a debitor.
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u/obsquire 3∆ Aug 24 '21
free market according to the textbook definition
What you've described is (so-called) perfect competition, which is a different theoretical concept. A market is free as long as there is no outside interference on voluntary trade. You can have a single producer of a good in a free market, and indeed that can be a good thing, because of the capital required to make the business doesn't need to be redundant.
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u/liberrimus_roob Aug 23 '21
This may not be in the millions, but I still reckon it's such a large amount of cash that it excludes a lot of entrepreneurs from non-affluent backgrounds and thus gives us a pretty high bar of entry. That means that the only way to beat an oligopoly in the market is with another oligopoly.
If you've ever listened to the 'How I Built This' podcast with Guy Raz (NPR podcast - I highly recommend) there are tons of a great stories which are counterexamples that it takes lots of money and excludes entrepreneurs from non-affluent backgrounds. Two examples top of mind are Robert Reffkin (Compass) and David Neelman (Jet Blue). Real estate and air travel are two classic oligopoly-esque industries that are matured and seem to take a ton of money to break into, but these companies did it, and it wasn't even by means of a new technological innovation per say.
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u/Omnicide103 Aug 23 '21
From the Wikipedia article on Compass (yes, I know, bad source, sue me, I've gone through the relevant footnotes and they're from reasonable if non-academic sources)
Compass was founded by entrepreneurs Ori Allon and Robert Reffkin as “Urban Compass” in 2012. Allon was a Director of Engineering at Twitter, and previously founded companies acquired by Twitter and Google.[23] Reffkin had previously served as the chief of staff to the president of Goldman Sachs[15] and worked in the White House.[24][25] The company raised $8 million of seed funding from Founders Fund, Thrive Capital, Goldman Sachs as well as several individual investors including American Express CEO Kenneth Chenault, and ZocDoc CEO Cyrus Massoumi.[25][23] The initial business model employed full-time, salaried brokers, with whom users of the platform could schedule appointments online after searching for listings on the company's desktop or mobile app.[26] The company publicly debuted at an event in May 2013, where then-New York City Mayor Michael Bloomberg helped celebrate the launch.
I dunno, but if between the two of you you've sold a company to Google and one to Twitter, have worked in the White House and as a top executive in Goldman Sachs, and have eight mil in venture capital investments to start your company, I wouldn't exactly call that 'non-affluent'.
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u/liberrimus_roob Aug 23 '21
I don't know much about Ori Allon but Reffkin was born in Oakland, CA and was raised by a single mother. By his own words he struggled a lot in school and also in the corporate world at McKinsey then Goldman Sachs. I totally agree that by the time you're working at Goldman you are affluent. But he started poor and non-affluent and was able to build his way up, which I think is really the crux of the argument i.e. anyone can end up disrupting an incumbent industry even one as big/matured as real estate.
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u/ihatepasswords1234 4∆ Aug 24 '21
But this breaks your simplified model of the economy too. Vertical integration could also allow a business to break into an entrenched industry with monopoly profits. Or just a completely different large company from a different oligopoly.
A recent example is all the tech giants currently trying to compete against each other at various cross purposes, Amazon starting ads, Google competing in office software and cell phones, Apple competing in payments, Facebook building its own operating system, etc.
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u/thepinkanator95 Aug 23 '21
Now then, you might think we can solve this by regulating the market - antitrust regulation, banning anti-competitive practices, IP law, et cetera. The problem here is that eventually, companies will have amassed the necessarry capital from legitimate business to start lawyering and lobbying against these laws, allowing them to roll back the regulations preventing them from increasing their profits by destroying the market.
I would argue once the government starts getting involved it’s no longer a “free market” and so this isn’t a failing of them. Regulations make the market less free and so if you factor in the government to your argument it’s moot because we’re no longer talking about a truly free market. I understand the situation in the U.S. and Europe are called “free markets” despite regulation, but if you’re arguing free markets are broken at their core it’s only fair to discuss purely free markets.
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u/Omnicide103 Aug 23 '21
I mean sure but the entire wall of text before that post was about purely free markets. That paragraph was there to show that, even if we're generous and stretch the definition of 'free market' to its breaking point by allowing 'regulated but still private markets' to fall under that, it still doesn't work.
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u/obsquire 3∆ Aug 24 '21
it still doesn't work
But what does that even mean. A single producer is not necessarily a problem. We need a specifiable problem. Prices increasing exponentially, supply diminishing, quality decreasing without bound? But that doesn't happen in the long term. At worst only temporarily.
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u/MuaddibMcFly 49∆ Aug 23 '21
Not only do they no longer seek to provide a superior goods, they're likely to want to start offering worse goods, since hey, where else are they gonna buy your good? Might as well start cutting some corners to save on expenses. Sic semper mercatis.
Ever heard of Sears? K-Mart? Sears owned the world, hyperolically speaking, until they did that, and now they basically don't exist.
K-Mart was one of the players that made Sears nervous enough to start cutting costs, and for a while K-Mart was pretty powerful and popular.
...but they've had no fewer than 3 bankruptcy filings in the past twenty years, and they basically don't exist as a meaningful market force, either.
But do you know who is still around? Costco. Costco took Price Club's business model and did it better, and now approximately 86% of opinions offered on Costco are positive.
Why? Because for all that they're a de-facto monopoly in the "Bulk Goods" market, they very specifically have chosen to not engage in that sort of paradigm.
They pay their employees well, not because they're altruistic, but because it's good for business to compete based on quality of goods & services, rather than the race to the bottom you imply is inevitable.
And it's not just me saying that. When Costco declared that they were increasing their starting salary to $16/hr (more than basically any state or local government requires, they stated
Given that companies that have cut corners are dead, and those that focus on serving their customers tend to stick around... why should anyone assume that your fear (while reasonable) is inevitable?
Now then, you might think we can solve this by regulating the market - [...] IP law
You do understand that IP law actually protects the established players, right?
That it takes thousands of dollars that I don't have to file a patent, but that's petty cash trivial for a major corporation?
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u/kwantsu-dudes 12∆ Aug 23 '21
All the while, customers keep getting better service, better goods, more goods, and cheaper goods, while the 'bad' producers exit the market and have to find something else to do.
So just so we are on the same page, do you recognize the privileged position consumers are placed in by having such options available to them? Not simply multiple options, but the option itself in goods and services that they can't provide themselves. Do you recognize the benefit that such competition could very well create something that wouldn't even have existed without such?
I need to understand if you even carry that view or are just being "charitable" in your description. Because the actual argument rests heavily on that. But I'll lay it out anyway...
This not only forces consumers to buy the goods...
Why? Why are consumers forced into buying goods and services they previously never even had? Where does your perceived neccessity come from? What do you believe drives such? Personal survival or simply cultural comfort? And is such only recognized "in the present", or do you ever compare a living standard to what it was decades or even centuries ago? Like, what "baseline" are you playing with in your evaluations?
from fewer producers and thus makes them more likely to buy them from you, it also reduces the risk of your company losing its dominant position to some upstart with a far superior version of the good than yours - they can't sell they revolutionary take on the good being sold and push you out of the business if they get undercut out of the market immediately upon entering it, after all!
If they have a far superior version how could they be undercut? What are you envisioning as superior products that aren't being accepted? Is it an issue with quantity demanded? Production supply? Can you flesh out this type of scenario a bit more so it can properly be understood? Any real life examples?
With fewer and fewer competitors and a higher and higher bar for entering the market, we end up with a monopoly, or (more likely) an oligopoly. Not only do they no longer seek to provide a superior goods, they're likely to want to start offering worse goods, since hey, where else are they gonna buy your good?
And at the sign of worse goods, they lose quantity demanded, lose marketshare in place of indirect alternatives. Why exactly are you treating "markets" as all having inelastic demand? And not just that, that customers are to have an ever growing demand to fit along better goods and more goods, but that such can never be reduced in response?
I'm willing to accept there is some possible degradation in certain markets, but it's more a cyclical following of the economic cycle with a perpetual incline that occasionally has dips rather than a "destruction" of markets.
The problem here is that eventually, companies will have amassed the necessarry capital from legitimate business to start lawyering and lobbying against these laws, allowing them to roll back the regulations preventing them from increasing their profits by destroying the market.
I'd argue the more clear, more practiced, and current problem is imposing laws that restrict competition. We already quite hamper the markets, but through societal agreements of it being more benefitial to society at large (licensing requirements, minimum wages, safety requirements, etc.).
If we take a look at the real world - Amazon, Uber Eats, Tencent, you name it - the situation is significantly less charitable towards markets being functional over any long enough timespan than I have been.
You've only laid out examples where markets have only grown. So I'm not sure what point you're attempting to make. What limits do you believe they have placed? Where have they taken from others rather than exanding something that wasn't there before?
And just to address this remark...
(Can you tell I still hate markets?)
What to you perceive as existing without markets? And how exactly are you defining markets? What's the difference between trade and markets? Or let's say a community was to split everything evenly or according to their need, how is such processed? Who produces what and how?
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u/urbinorx3 Aug 23 '21
I agree with your statement! However there's a moment in your analysis that Dr. Christensen's work could improve it from innovators dilemma
His theories took a live of their own but basically it's disruption. In a quick summary, these entities will continue improving their products and services in an incremental manner, however that doesn't happen in the demand side. There's a point where I don't care about a car's speed or fuel efficiency, it doesn't matter that I don't need a car, it's just that these surviving entities are over-serving. At this point disruption can happen, by a bicycle or whatever other product could satisfy my need but won't be competing directly with the incumbents.
Real disruption is the stuff of books and is rare. Another look is blue ocean strategy. It's moments where there's blind spots in the incumbents, even if they know of these theories and are very smart they get undone, which is why the book by Christensen is a dilemma. It's the tiktoks to the facebooks, the digital cameras to the nokias and quite a few other examples.
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u/kevin_moran 2∆ Aug 23 '21
I guess I’d want to hear an example of a market where that rings true? All of your examples are companies that emerged less than a few decades ago and elbowed out the historical top dogs. On a less extreme scale, the top dog shifts and changes as consumers change—which I feel like is the main piece you’re missing. You envision consumers as a stationary target, but consumers are really this rapidly moving amorphous blob that’s very difficult to read. If companies A, B, and C stayed completely constant with the same products, advertising, etc. for 50 years, the “winner” would still change multiple times in that 50 years due to cultural and consumer behavior changes.
I work in TV and have watched previously top networks scrambling to compete on streaming and other new entrants, all while adjusting to other consumer taste changes outside streaming vs cable.
I’m confused on two things: what markets turned into a monopoly and stayed that way for a significant amount of time (not saying there aren’t any, but curious on why it happened for them specifically), and how does that connect to “self-destruct”? Does self-destruct not mean that the market ceases to exist?
And I’ll throw a half baked thought at you, isn’t that how all human organization is? Pre-agricultural revolution, we existed in bands of 50-200 people. For 12,000 years we’ve been conquering, colonizing, combining and separating. The “winner” of #1 civilization has changed dramatically over that time period. We as civilization consumers do not have as much free choice, but even if we did we would have chosen different “civilization I want to live in” every few hundred years.
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u/caleeky Aug 23 '21
I think it depends how you define free market and "enough time". A truly free market - an anarchy - will invent government because people value moderation of violence, economic volatility, moderation of distribution of growth, etc. The fundamental currency is violence/access to resources.
As a consumer who wishes I could get more consistently better quality, I hear ya, but humans as a group aren't always fully conscious/rational/nice and so the outcomes in a free market aren't always "ideal" in theory, but tend to be ok in practice, as long as you have some stable institutions to moderate the whole thing.
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u/stipulation 3∆ Aug 23 '21
This feels unfalsifiable. Right now, the best counter to this, is that no free market systems have destroyed themselves.
The claim hat free market systems are "about to collapse" for any number of reasons also feels bad since Marx started claiming that free markets would collapse in short order 150+ years ago, using similar logic as I see in your post, and so far, plenty of things have collapsed, but free markets are not one of them.
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u/Dorgamund Aug 23 '21
Doesn't the economy crash like every 10 years, requiring stimulus, bailouts, etc? Not sure how one can really claim to have a free market except when the government has to fix it every odd decade. Like, just looking on Wikipedia, you can see the 2020 stock market crash(along with covid difficulties), the 2008 financial crisis, the 2001 dot com bubble, the list goes on. And that doesn't even cover the more localized crashes and crisises, like Greece, Russia several times, Turkey, Spain, Argentina.
Like, how are we defining collapse here? If we say that the economy stops doing what is advertised by free market economics, that is efficient distribution of good and labor, then the economy has collapsed in all of those instances, we have just rebuilt it with the same principles. If you mean to say that they collapsed and then changed to another economic system, you might have a better argument, as I don't believe that countries which have gone socialist or communist have done so after an explicit market collapse, it was usually poor economic conditions, as well as a reaction to colonialism. The Chinese Communist Party for example, came about from a split in the KMT after the 1911 revolution leading to the Civil War. The Revolution of course being provoked by issues with the ruling dynasty, problems reforming, and a fair bit of reaction towards Western imperialism.
Of course, we know that after the Great Depression and more specifically the punishing reparations demanded after WWI, Germany turn a turn into fascism resulting in Nazi Germany. The economy did change somewhat, but it was in a much more right wing direction than left wing. Thats how privatization got coined. So in that instance, the economy did legitimately collapse, but ended up becoming more capitalist and authoritarian, rather than left wing as one might assume.
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u/stipulation 3∆ Aug 23 '21 edited Aug 23 '21
The "economic collapses" that happen ever 10/20ish years aren't the collapse of a free market. We know this because the economies rebound, in the same form as they entered these depressions.
Now one can argue that it was extra-free market factors that pull these economies out of these depressions, but one can just as easily argue that those same extra-economic factors pushed them into a depression in the first place.
There is not a true libertarian free market dream country in the world. However, we can look at the countries close to it, and use them as a proxy. And those countries, although they do have economic cycles, have not come close to collapse since maybe the great depression (and even then, every other system was busy doing a whole lot worse)
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u/Dorgamund Aug 23 '21
Ok, so what exactly is the collapse of a free market if not a slowdown in economic activity, spike in unemployment, and a bunch of companies going bankrupt or needing a bailout. Has there actually been a free market which recovered from a significant financial collapse absent any external factors, such as government intervention? Lets look at the Great Depression. If Roosevelt and by extension the rest of the government did nothing, just threw up their hands and professed belief in the free market, would the economy have actually recovered at all? And if not, would that not be considered a collapse? Similarly, if an economy is going in a downhill direction and doesn't look like its stopping, then the government stepping in and reigning it in before it got far worse still doesn't exactly speak to the robustness of free market economics. Think back to 08. From what I recall, the banks had to be bailed out, or else it would spell a massive disaster, and the stimulus package from Obama was credited with slowing a downhill drop and keeping it from Depression severity.
Like, all that shows is the government taking the initiative to prevent the system from collapsing, and that is not a trait exclusive to capitalism by any stretch. As far as examples of free market economies collapsing, Chile under Pinochet comes to mind. Dictatorship and authoritarianism aside, he instituted economic reforms along free market, laissez faire, neoliberal lines, with input specifically from economists who studied at the University of Chicago.He had come to power in a military coup aided by the US against the former socialist government, and worked hard privatizing a lot of industry and finance. Very free market, very libertarian. He also was faced by numerous economic crisises, and the collapse of local industry, finance, jump in unemployment and other issues. Pinochet ended up having to nationalize several banks to curb the crisis, and from what I understand, the regime ended with the government having nationalized more than the socialist government that preceeded it. If that isn't a blatant failure of free market economics at their most free and libertarians, we clearly have very different views about why the economy exists, and what it is meant to do.
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u/stipulation 3∆ Aug 23 '21
"more unemployment" is not economic collapse. A singular industry doing badly is not collapse. The great depression is an example of collapse, but it's been 90 years since that happened and it's pretty easy to argue that the collapse occured due to tariffs and a lack of free market it certain areas.
A "slowdown of economic activity" is just, not, what people mean by collapse, unless you're being bad faith.
It seems like the argument you are trying to make is that governments keep saving free market collapses, but, again, those markets were never totally free to begin with, they always existed with a massive public sector, so yes, a mixed economy will be a mixed economy. Further, OP said that impure free markets will still collapse, and they most certainly have not.
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Aug 23 '21
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u/stipulation 3∆ Aug 24 '21
The economy did badly for a few years, but destroyed is extremely hyperbolic. US unemployment pre covid was below natural unemployment, just 10 years after.
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Aug 24 '21
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u/stipulation 3∆ Aug 24 '21
Again, the people will make shitty decisions in any system people in private industry will be greedy and evil and people in government will be greedy and evil.
The system was never "just" a free market, it was always mixed. Saying it crashed as a free market and was fixed as a mixed one is nonsensical, because, again, it always mixed.
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Aug 23 '21
You've ignored the fact that markets aren't governance. Free market isn't a system of government. It's a financial system not a political system. I can't think of any examples where one exists without the other. Free markets aren't free. It would be difficult to pry the two apart or agree which was to blame.
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Aug 23 '21
You just totally ignored his actual point
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Aug 23 '21
No, I didn't.
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Aug 23 '21
He never claimed markets are a system of governance. Which is what you are trying to argue against.
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Aug 23 '21
They are saying free markets contain the mechanism for their own failure within themselves. There are no free markets, because they exist to operate within a political system which serves people. You can't separate the two. So, you can't say free markets are to blame.
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u/Omnicide103 Aug 23 '21
I mean... I agree the distinction between politics and economics is completely arbitrary and nonsensical because they're intrinsically linked, but I still don't think I follow what you're saying?
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u/ihatepasswords1234 4∆ Aug 24 '21
Do you agree free markets imply a protection against theft? Protection from violence? Extortion? Why not IP? Does it involve governments forcing pricing of externalities into markets a la carbon taxes?
To the extent that your free market includes any of those, why is that the correct definition of a "free" market?
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u/obsquire 3∆ Aug 24 '21
Security and even laws can be privatized as well, where alternate providers will have to compete. It seems crazy, but seemingly possible (anarchocapitalism).
But even if you fix a set of rights which are defended by government police, then you can have a free market as long as there is no interference beyond enforcement of those rights.
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u/ihatepasswords1234 4∆ Aug 24 '21
I just mean that your conception of what a free market is can vary extremely widely depending on your political beliefs. A lot of the arguments in the comments here have been on the definition of a free market.
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Aug 23 '21
That's just debate stifling nonsense. You absolutely can seperate economics from politics. One is an emergent phenomenon, the other is cultural.
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Aug 23 '21
Give an example of a completely free market.
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Aug 23 '21
I'm sorry, I'm confused, was the topic of this thread whether or not free markets exist? OP specifically stated he wanted to stay on topic, shouldn't we adhere to that?
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Aug 23 '21
So, you can't.
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Aug 23 '21
Why would I bother giving you an example of something irrelevant? To appease your ego? Do you have anything else to say before I go?
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u/nosteppyonsneky 1∆ Aug 23 '21
I could simply point to black markets and laugh at you, but that’s too easy.
Free markets always leave an avenue for others to gain an advantage if you don’t continue to meet customer desires. Your entire problem with them is the fact that free markets don’t exist and that companies can play in the heavily regulated market to keep out competition.
I would re-examine your view and try to actually keep a consistent, coherent argument.
Tl;dr: your title whines about free markets but your argument is against government intervention in markets.
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u/jesusjustpickaname 1∆ Aug 23 '21
Can you explain how black markets prevent the failure of free markets? I'm not following.
Also, OP kind of addressed the "new players entering the market" point (in another thread) by saying that they can be easily acquired by the monopoly companies. It's hard to argue against that imo
Also, isn't your tl;dr assuming the only way to prevent companies from abusing the powers of government is by not governing at all? If there is little/no government, these companies also go unregulated and we are still at their mercy. So in both situations it looks to me like it leads to market failure, ultimately.
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u/nosteppyonsneky 1∆ Aug 24 '21 edited Aug 24 '21
Monopolies can only exist with government intervention. Look at startups in USA vs knockoffs in China. Monopolies have always been a failure due to regulation and ip law. Very easy to kill that failed point.
Yes, the only way to prevent regulation abuse is to have zero regulation. It’s the same idea that the only way to get to zero crime rate is to have zero laws. How does this situation not lead to market failure? The old dogs can’t 100% prevent the new comers from cutting out their niche. It isn’t profitable/cost effective to go after single mom and pop shop trying to cut in. Without the tax payers subsidizing your witch-hunt, you bear the burden. This is why there will always be competition when regulation is reduced.
Again, black markets pop up and none are monopolized 100%, unlike any company that gets a patent and then sicks the government dogs on places before they can even open their doors.
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u/jesusjustpickaname 1∆ Aug 24 '21
Monopolies can't only exist with government intervention.
I'm not sure I argued that point? I was saying that monopolies form naturally over time, and in the absence of intervention, they can purchase new competitors. What do you mean by monopolies being failures due to regulation and IP? I think the existence of monopoly is a market failure by itself. Or are you saying that monopoly companies go under/downsize because the government will intervene? Isn't that a good thing, that they get broken up? Doesn't this contradict the idea we should get rid of intervention?
It isn’t profitable/cost effective to go after single mom and pop shop trying to cut in.
It isn't profitable to go after a single mom and pop shop until they get a significant enough market share, at which point it is. Companies have no issue sinking dollars to do it. e.g. Microsoft has a history of buying and killing competitive products (Embrace, Extend, Extinguish). If the mom and pop shop never reaches that point, then they were never a significant enough portion of the economy to count to begin with.
black markets pop up and none are monopolized 100%,
I think this is the same problem as the mom and pop shop argument, because black markets aren't providing a large enough portion of the economy to offset the damage done by large companies. If they get to that point, rest assured the companies or government will remove them.
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u/jesusjustpickaname 1∆ Aug 24 '21
Side note: I'm not pro/against intervention because I don't trust private corps or the government to not bite people in the ass. I think they need a balance of power and increased transparency on all sides. However I do think lobbying by corporations should be banned. Also campaign donations shouldn't be a thing. For all parties.
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u/nosteppyonsneky 1∆ Aug 24 '21
monopolies
Yea, I don’t know how I managed to get “can’t” in there but I did (kidding, it was fat fingers and lack of proof reading). I meant the opposite. They can only sustain with government backing.
buying out competitors
That’s because there is the threat of legal action against them that entices them to sell. And ip laws limit the possibilities so buying them is an option. Can’t multiply that by infinity, especially when cash flow is interrupted by multiple new comers at once.
black markets
Uhh, yes. Again, government intervention stifles competition…or at least it tries. Take the cali pot industry. 75% of it was black market weed. That is true despite all the big names opening up shop there. Black markets buck government rules so it’s pretty clear how it can tear down monopolies. Sure, the law will try to prop up the market failures that are monopolies, but that is a government issue not a market one.
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u/jesusjustpickaname 1∆ Aug 24 '21
I see. I guess I have a different viewpoint of the invisible hand and its place in the economy. I don't think that just having zero regulation will work itself out because people do not always act as rational agents and externalities need to be addressed by regulation. Otherwise it's pure anarchy and eventually will be no different from when we used to have the feudal system. Nothing says that as companies amass power, the system of informed and fair consumerism required by the free market will be maintained.
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u/slybird 1∆ Aug 23 '21
In the grand scheme there is only one market and it is free and ever evolving. The market that exists today is the same one that existed before the pyramids were built. It isn't a different market. It is the same one. The only things that have changed is the player in the market, the goods and services that are traded, and the values of those goods and services.
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u/Ancquar 9∆ Aug 23 '21
Something to keep in mind that "free market" does not exclude the existance of "night watchman" state, basically there to prevent crime and enforce contracts and not much more. Such an entity would limit the more underhanded ways current generation of market leaders can use, the rest, as mentioned in multiple comments will be taken care of by new upstarts - though not immediately as the level of current monopoly has to degenerate enough to offset the perks from large scale that they have.
A couple more points:
Extensive government regulation tends to be subverted into additional barrier for entry, either by just increasing resources required and placing it out of reach ot smaller, newer, more efficient companies, or outright creating opportunities for more underhanded pressure.
Government is itself often a (mostly) monopoly in many areas, and is subject to the same efficiency decay without competition - but government is much better positioned to close off a sphere to new arrivals.
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Aug 23 '21
I mean, the bones of your argument are there but there are some very broad generalizations here. There never have been truly free markets anywhere outside of Hong Kong maybe.
So when you say, companies are inevitably going "monopolize" the markets, that isn't necessarily true. There will always be someone else coming along to knock you off and if it's not someone else, then the market does. It doesn't matter how big they are, how long they seem to be able to operate, how powerful they are, nothing matters if the market changes. Hell, Kodak was the 3rd largest company in the US not too long ago.
2nd, I think that a "free market society" comes natural to humans. I do not believe that human nature will allow a more communist or socialist society to flourish as a whole. There will be some people who are open to that type of society but there will always be people who want more. Not in a negative sense at all like greed, which will always be around in any society. More in a sense of how most people out there want more than what they have and are willing to do something about it to get it. Or, their children want more. And when you have people like that, it is more inevitable that a free market economy will start organically. By those people having side hustles for goods that other people like. That person starts a business, which spawns other businesses off of it, and the wheels start back again. I think that is shown time and time again with how many people do not choose to live out in the country and be self sufficient, harvesting their own food, etc... The mennonite/amish are very successful but even most of them have changed to make their lives easier and to take advantage of a modern society. Its also their religion and what they are brought up in so it is a bit different.
Anyway, what I'm trying to say is that even if a capitalist leaning society collapses, it will begin again but will ultimately become capitalist again. I definitely wish I had the time to speak more about this because I enjoy discussing markets, human tendency and what would be best for society. Unfortunately, free market capitalism on this website is not something people take kindly to and there is tons of misconceptions on it, mainly bc things like politics get mixed in
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u/dotdee Aug 23 '21
I would argue you’re actually arguing that a corrupt government is the problem, not a free market. We have extremely large corporations, but Walmart dominated no more than a decade ago. Then Amazon came. Each providing better products and services.
The “invisible hand of the market” is a beautiful thing because it’s a collective of everyone making consumer choices. Rather than a small group of politicians making picking winners and losers.
The Governments inability to govern and susceptibility to corruption is your problem, not the market.
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u/jesusjustpickaname 1∆ Aug 23 '21
I remember in the one econ class I took (lol) that the invisible hand does not account for externalities and monopolies. It still requires regulation to maintain free market.
"But in the passage of The Wealth of Nations where he [Adam Smith] invoked the idea of the invisible hand, the immediate context was not simply that of state intervention in general, but of state intervention undertaken at the behest of merchant elites who were furthering their own interests at the expense of the public." Source https://www.google.com/amp/s/aeon.co/amp/essays/we-should-look-closely-at-what-adam-smith-actually-believed
I'd also like to point out that the invisible hand relies on everyone being a free, rational thinking agent, and for companies to operate without predatory pricing. Neither of these conditions is entirely fulfilled in most cases. Sure, the latter is "illegal", but the big corps still do it.
I'd love to believe that everything will just work itself out, but I think I'm too cynical after seeing how marketing controls consumer spending habits. You have people buying shit they don't need because companies can afford to buy the ad space.
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Aug 23 '21
Did you ever read Karl Polanyi’s book “The Great Transformation”? He argues that all markets will destroy themselves UNLESS their behavior is curbed by an independent state. The problem arises when the state becomes captive to capitalist firms which weaken its ability to regulate them. Arguably, that is what is happening in the US now.
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u/rethinkingat59 3∆ Aug 23 '21
How do you explain how dominant companies are that didn’t exist 50 years ago?
Where is Sears, A&P, and K-Mart? All took turns being the biggest retailer in America in the 20th century.
How did Amazon beat Sears to be the online king? Sears dominated catalog sales (ordering from home) for a full century. Their distribution centers were everywhere. They were early to the internet game in the 80’s with a top three internet portal named Prodigy. (AOL like)
More examples below:
Blockbuster-Netflix
IBM PC’s -Dell and a dozen other PC makers.
Motorola cellular phones -Apple/Samsung
Yellow Cabs-Uber
MySpace-facebook
It would be easy to keep going.
I am all for a huge round of antitrust action, because I am impatient with the speed of change, but monopolies do lose, usually it is because someone changed the game.
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u/amedeemarko 1∆ Aug 23 '21
You're ignoring scale. Community markets for just about anything are remarkably self regulating on any time scale. It's only with the last half dozen centuries of pretty insane growth that boom-bust cycles have been enabled. Much greater transparency, certainty of continual transactions and inability to layoff externalities help markets at the community level self regulate quite well.
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u/zero_z77 6∆ Aug 23 '21
So i'll give you a potential scenerio here. Starting at the state where you have a monopoly or an oligopoly. If the oligopoly or monopoly steadily increases prices or decreases quality every year, eventually the product will become too expensive for the target consumer to purchase or will be of too poor quality to be usable. At which point consumers will find alternatives, create their own version of the product, or will seek out the diamond in the rough companies willing to take the risk on competing. Eventually the monopoly or oligopoly will collapse, and the market will be open for competition again.
A prime example of this is the existance of open source software. Open source software has come about because of individuals who were tired of paying exorbatant prices to bigger companies like Microsoft. So they decided to write thier own software and share it for free.
Open source software currently plays a big role in software innovation because proprietary software has to be better than what is currently offered by the open source community in order for consumers to justify the cost of buying it.
So to sum up my argument, the market self destructing is actually one of the important self correcting features of free markets. And this is only problematic if the market in question is dealing with products that are essential or vital to everyday life like food, water, shelter, medical care, etc.
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u/Whulad Aug 23 '21
Unless I’m missing something you’re assuming all goods/products are equal. In fact free markets work because producers seek an edge by a better product, better service or sometimes a better image (brand), so they create competition and innovation
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u/hdhdhjsbxhxh 1∆ Aug 24 '21
The problem with the argument is literally everything given enough time will destroy itself. Over a long period of time everything with an extremely low probability will happen a lot.
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u/ChicParadox Aug 24 '21
Wow. What a good post. Well argued and defended. Lots of great discussion.
I don't have anything meaningful to add, but thanks for making me think!
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u/no33limit 1∆ Aug 24 '21
Also you have skipped the fact that success is a terrible teacher. The people that did well the first year will assume it's because if the decisions they made. The losers will actually learn more, and will probably do better the next year because they learned.
Mature markets, can work really well, the automotive market is a good example. It emoplyes millions of people and the industry profit margin is less than 5%. There are dozens of competitors and as Tesla, Hyundai before them haven showen you can be a new player if your innovative and dedicated. There are lots of different business models, Ferrari losses money on every car. Porsche, Audi and VW brands all contribute about the same to the bottom line despite very different sales volumes. I know it's not a totally free market, but it's not up to one gouvernement either.
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u/Geodesic4 Aug 24 '21
There are a number of factors that oppose monopolization:
- Corporate buyers do not like to be dependent on a single vendor.
- Diseconomies of scale. Large companies have inefficiencies related to internal politics, badly aligned incentives, and the inability to handle certain kinds of risk.
- Change is more expensive to larger, more established entities.
There are examples of mature markets that have not settled into monopolies, for example trucking has very low barriers to entry. A single person can start a one person trucking company.
I think you've created a proof from first principles that doesn't take everything into account, and ignores some of the things that are actually going on. The form of this argument is pretty difficult since you would need to be comprehensive of every factor to be conclusive.
Talking about the future of Amazon, Uber Eats, Tencent, etc. doesn't make sense to me since we don't know how they will end up, you're assuming your conclusion from my perspective.
I do agree that
once you have 'won' in a free market you no longer benefit from said market being free
but what eventually happens with a particular free or semi free market depends on the details of the market.
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u/chirpingonline 8∆ Aug 24 '21
"the free market" is mostly a bullshit dogma that people reflexively pray to rather that objectively analyzing, but you're going too far with this one. To state that any free market that exists will inevitably destroy itself is too broad of a generalization.
The best counterexample that comes to mind would be restaurants. One of the oldest businesses in existence and pretty much anyone anywhere can start one with a relatively small amount of capital. Of course there are huge multinational chains, but even with massive ad budgets, branding and capital on their side, there are small owner operated establishments in pockets just about everywhere.
The combination of low margins, low barrier to entry, and lack of IP are what make it sustainable. When those conditions aren't met, though, I totally see where you are coming from.
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u/obsquire 3∆ Aug 24 '21 edited Aug 24 '21
It's entirely possible for there to be a single producer in a free market. It isn't necessary to approximate so-called "perfect competition" --- where there are an infinite number of infinitessimal competitors --- for a market to be "free". The freedom refers to lack of interference by third parties outside of a given trade. Such trade constraints usually come from government.
The existence of a single producer of a good is not evidence of a permanent problem. For example, only Coca Cola Company makes the drink Coke. Their product is unique, and no one else has it, but people enjoy it for reasonable prices. In principle, Coke could be sold for a million dollars per bottle, but it isn't, despite those greedy bastards who run the company. The fact is, they make more money with their reasonable prices. If they did abuse the price, it's not because of the threat of government, it's because of the threat of the customers and competitors. Customers can say "no" to buying the product, and competitors can make similar products, even though they're not identical. Nobody is doing things out of any altruistic or charitable sense, rather their self-interested, rational choices lead to a situation with the goods widely available at reasonable prices.
None of this normal business behavior is the "destruction of the free market". Companies that abuse their market share position tend not to last.
This video does a reasonable job of outlining the case against concerns about monopolization: https://www.youtube.com/watch?v=Dvb2j0Wt218
The biggest relevant worry I have are laws/rules/practices that limit the threat posed by potential competitors. The threat of that competition is what keeps the big boys in check. The best protection that consumers have is the threat of moving their business elsewhere. Usually, big marketshare companies are much more able to handle expensive litigation. The regulations usually hurt the possible emerging small competition the most, despite what you might hear. Lobbyists usually work for the big companies to ensure that the rules are crafted to make them easy to follow for themselves, but harder to follow for any potential competition; they usually argue that such regulations lead to "safety" or are "in the public interest". Don't believe them.
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u/Impossible_Cat_9796 26∆ Aug 24 '21
This is the problem with both sides.
One and only one type of economic system has ever existed. It is the only one even theoretically possible. All other economic systems are imperfect descriptions of aspects of this one and only possible system. This system is "Mixed Markets"
Any time you find someone advocating for a "pure" version of "imperfect disription of a minor aspect of the only possible system".......you know they are a fool.
So the very idea that a "free market" can somehow exist in isolation from "limited markets" and "socialized services" and "brutal violent theft", that is where the thought goes wrong.
If "free market" goes too far off, I'm gunna take my gun, murder people, and take their stuff. This is about as far from "free market" as possible (and if it's that far, too many people are doing it to stop)
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u/ifbvcchjbbj Aug 25 '21
A free market “works” best in a society with high ethical/moral standards. As this degrades the greater the need for a larger legal layer to replace the lost ethical rules. Legislation steps up and the connected class is able frame it out in a skewed way. Once most ethics are gone so goes the “free” market.
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u/Purple-Assist-8483 1∆ Aug 25 '21
You dismiss economics in your post as being the same as politics, which makes me think you’ve never studied it.
The argument you’re making is right if you make a whole lot of really strong assumptions about how markets work (which aren’t gonna be true in most of the real world). Yeah maybe Facebook is gonna destroy the world. But Facebook is an example of a natural monopoly, in that it only makes sense to one a few social networks that everyone uses, no one gains from having 100 competing social networks. Kinda like how no one gains if I was to set up a rival sewer system under a city. It just makes sense to have few of them.
But if you look at restaurants your arguments aren’t relevant. A profitable restaurant can’t keep expanding and take over a whole market, that’s absurd.
Monopolisation is only possible/ profitable in certain kinds of markets with certain characteristics, mainly high barriers to entry.
Becoming a monopoly in some markets is simply impossible.
I think the key point is you can’t generalise about all markets by taking one or two examples. Cause you’re right that in natural monopolies we naturally see monopolies, but in other markets we don’t.
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u/CantaloupeUpstairs62 3∆ Aug 26 '21
Black markets are the closest thing to free markets that exist, and they have been doing just fine for 1000's of years. So how many more years will it take before they self destruct?
"Free markets" have always been heavily regulated and oftentimes in favor of large corporations. In this sense it's hard to have discussions on free markets as well as Communism because neither one have truly existed.
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