A popular fallacy that has become part of the tradition of anti-trust law is Predatory
Pricing. This where a big company that is out to eliminate its smaller competitors and take over their share of the market will lower its prices to a level that dooms the
competitor to unsustainable losses and forces it out of business.
A remarkable thing about this theory is that those who advocate it seldom provide
concrete examples of when it actually happened.
A company that sustains losses by selling below cost to drive out a competitor is
following a very risky strategy.
Even if our would-be predator manages somehow to overcome these problems, it is by no
means clear that eliminating existing competitors will mean eliminating competition.
Even when a rival firm has been forced into bankruptcy, its physical equipment and the
skills of the people who once made it viable do not vanish into thin air. A new
entrepreneur can come along and acquire both.
Bankruptcy can eliminate particular owners and managers, but it does not eliminate
competition in the form of new people, who may either take over an existing bankrupt
enterprise or start their own new business from scratch in the same industry.
Whatever the merits or demerits of various political proposal, what must be kept in mind when evaluating them is that the good fortunes and misfortunes of different sectors of the economy may be closely related as cause and effect - and that preventing bad effects may prevent good effects. It was not accidental that Smith Corona was losing millions of dollars on its typewriters while Dell was making millions on its computers. It was not accidental that Safeway surged to the top of the grocery business while A&P fell from its peak to virtual oblivion. The efficient allocation of scarce resources, which have alternative uses, means that some must lose their ability to use those resources in order that others can gain the ability to use them Typewriters were no longer what the public wanted after they had the option to achieve the same end result and more with computers. Scarcity implies that resources must be taken from some places, in order to go to other places.
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