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ANTI-COMPETITIVE PRACTICES - CONT'D

Dumping

This is the practice to sell at a loss in order to bankrupt your competition or force it out of the market. Apparently, since this would obviously decrease competition it is bad.

To begin with, while dumping takes place who benefits? People. They get goods and services at below market prices. So, so far so good. For argument sake, let’s say that the evil company succeeds. It is now the only one on the market. Prices rise substantially. Apparently, this would be bad. End of story. But is it? Why is that politicians never talk about what happens next? Would it be because it is not favorable to them? What happens next it’s quite simple. High prices stir competing products and services. The higher the price, the higher the reward for competitors. If not direct ones, then substitute ones. Result? Higher competition than before dumping took place. Who benefits? Customers. Lesson? Dumping does not work. In the medium to long term dumping only increases competition and weakens the dumping company. Summary: if a company is stupid enough to engage in dumping, the free market will punish it. There is no need to intervene.

 

Exclusive purchasing agreements

This is a contract where a company is forced to purchase only from another company and not from competitors. Before proceeding, let’s be clear on something. When we say “is forced” what we mean is that they are presented with a “take it or leave it” deal. Most of the time, the company offering such a deal is one with a large market share. As such, its product is in high demand. If it would not be, the threat would be empty. So, when we look at this circumstance, the reality is that such a deal constrains customer’s choices, but all in all it still offers a desirable product to most customers.

But there is more. Just because company A does not offer product Z, this does not mean product Z is not for sale from somebody else. There is nothing preventing a customer from buying product Z. Furthermore, the presence of product Z is what determines competition. Not the fact that company A refuses to sell it.

Even if company A achieves total market domination through purchasing agreements, there is always another company around the corner that will ignore product Z.

Take the case of Microsoft. For many years Microsoft demanded that companies bundling PCs with their Operating Systems did not have any other OS on offer. You were, of course, free to purchase any other OS you may wish, just it won’t be shipped with your new PC. Eventually, all those dealings came to light and Microsoft was forced to stop this practice. A veritable government triumph. PC wholesalers were finally able to offer bundled Linux…. which did exactly nothing for the popularity of the Linux OS. It still hovers around 1.5% of the entire PC market, and it is free! Nobody wants in on their laptops. All those regulatory shenanigans accomplished exactly nothing.

However, eventually, other companies came up with all kinds of other gadgets and they did not want to use Microsoft OSs. What happened? Linux and other Unix derivatives grew exponentially, to the point that they now control about 80% of that market. And Microsoft? It just bough Nokia for a ridiculous amount of money; a company which was already on its way out of the market and was using Microsoft’s OS in their phones. Well… good luck with that.

The truth is that exclusive purchasing agreements do not work. They may inflict some damage to some people for some time, but eventually the free market corrects those anomalies. There is no need for bureaucratic intervention.  

 

Price Limits

 

This happens when by means of a monopoly, a company forces retailers to sell at a low price to discourage other competitors. Yes, this would be terrible. All those poor, poor customers forced to pay lower prices. How terrible.

However, just for argument’s sake, let’s say that this monopoly succeeds. No company can compete with them and therefore prices are low but higher if there would be competition. Do you spot the error in this kind of reasoning? If there would be sufficient demand, this would justify even lower prices and therefore other competitors. The truth is that this low price is close to the low price the same product or service would have achieved with competition. In a sense, the monopoly is competing against itself. As a customer, do you really care why you are paying lower prices? Of course not.

There is more. Eventually, new technologies will be developed and new processes, procedures and products will show up in the market that will compete with that monopoly, hence lowering prices even more. It is precisely the fact that those low prices are not low enough, that spurs competition.

Price limiting works in the customer’s favor.

 

Intellectual Property Fraud

This happens when a Copyright or Patent or other Intellectual Property is acquired by fraudulent means. Or that such IPRs are used to gain advantages in unrelated markets. Again. The problem is not how IPRs are used, but the fact that IPRs exist. Remove IPRs and the problem solves itself.

Of course, even playing by current schizoid rules and laws, fraud is still fraud. However, how exactly is fraud an anti-competitive practice? Fraud, in its most basic interpretation is a simple breach of contract. However, the current “justice system” (what a joke) is punitive, not restorative. If there is fraud, fraudsters pay nothing to victims. Again, this is a shortcoming of the justice system, not an anti-competitive problem. We are puzzled as to why is even listed as such.

 

Price fixing

This occurs when companies agree to keep prices high and not to compete against each other. Sounds terrible, the only problem is, it never lasts. The reason is simple: greed. Companies involved in price fixing soon realize that if they could, somehow, sell over their allocated quota or at a slightly diminished agreed-upon prices, they would still make a gigantic profit. Therefore, they cheat.

Take the OPEC for example. When first created, all their members agreed to ration crude oil. Their intention was to bid prices up. They succeeded…. For a little while… Their concept was that each country was allowed to sell a quota based on oil reserves. And then, the miracle happened! Most OPEC countries “discovered” that they had 50% or more reserves than previously estimated. And then… the price of oil went back to the original market price. OPEC was no more… at least in reality.

Price fixing or cartelizing never works for long. We have greed to take care of that. There is no need for bureaucrats, laws or regulations. The primary impetus driving free markets takes care of all.

 

Protectionism

This is what governments do. They impose huge tariffs or microscopic quotas to imports to sustain high prices inside countries. This certainly is an anti-competitive problem. And a huge one at that. The only issue is that the very bureaucrats and politicians and judges that are supposed to protects us against the evils of anti-competitive practices, are the ones setting them up!

How strange. Small so-called “anti-competitive” practices that inflict tiny and temporary damages to customers in worst-case scenarios, must be persecuted and prosecuted “to the fullest extent of the law”. Meanwhile, a gigantic anti-competitive practice inducing massive damage to customers seems to be OK.

Yes, your politician at work.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to We don’t need no stinking competition - Part 8

 

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