Meaning of Money Assignment

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competition_anti-trust_and_monopoly_1.ppt
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Milton Friedman:

  • “Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from government”
  • * denotes possible exam question

Competition *

  • Competition is a dynamic on going process
  • Of discovery and entrepreneurship
  • It consists of product innovation, raising or lowering prices, getting the product or service to end users, advertising, sales, mergers, acquisitions and other free market activities

Raising or lowering prices

  • Examples: Sherwood Medical Company, Raskas Dairy

Monopoly

  • A monopoly is a single seller, a single provider of a product or service
  • Two types of monopoly
  • Free market monopoly-this is theoretical because it almost never happens
  • Government enforced monopoly
  • Examples: U.S. Post office, telephone, roads and highways.

Monopolies are created by government not prevented by government

  • Most monopolies are created by government. Marketplace monopolies are unusual, because service providers cannot overcharge customers, like AT&T did, without losing their business to competition.
  • Thankfully technology is making government monopolies obsolete.
  • Source: Dr. Mary Ruwart, Facebook, Monday, November 30, 2015

Anti trust laws *

  • Use the force of government to restrict peaceful business and marketing activities such as mergers and acquisitions (airlines)
  • Argument for: a company can eliminate all competition through low prices — and then raise its prices after the competition is gone.
  •  Argument against: There is no real-life example of a company that was able to eliminate competition and raise prices.

Anti trust laws do not protect the consumer

  • Anti trust laws are anti competitive and anti consumer
  • Advocates of anti trust do not understand marketing

Staples-Office Depot merger

  • The FTC Federal Trade Commission has too much arbitrary power
  • Ignored growth of office supply sales on the Internet
  • U.S. Anti-trust laws represent the exercise of unchecked government power and the dismissal of market forces
  • Source: T. Donlan, Barrons, May 23, 2016

Monopoly opponents are strangely silent…

  • U.S. Post office?
  • Federal Reserve?
  • Microsoft, IBM, even cereal companies have been victims of anti-trust
  • Texas: deregulation of electricity at retail level
  • Advocates of anti trust want to have it both ways. Water, sewage, trash pickup.

The biggest monopoly

  • The Federal Reserve is the most powerful cartel in the world.
  • Most people think it is a government agency; in fact, it is an organization of private bankers.
  • The U.S. government has given it a monopoly on U.S. currency, which it expands at its sole discretion.  

Why do anti trust laws still exist?

  • The Golden Rule
  • “He who has the gold makes the rules”
  • The big boys like anti trust law
  • They like it when the force of government is used to stifle their competition
  • It’s not the customers who ask for anti trust laws

Government bureaucracy

  • Federal regulatory agencies use other people’s money to justify their existence

Predatory pricing? *

  • Can larger firms lower prices and drive out smaller competitors?
  • Then once competition has been eliminated they raise their prices and take advantage of customers?
  • There are other factors in the purchase decision, not just price. Quality, features, service. That’s one reason predatory pricing cannot be sustained for long

“Predatory pricing” cannot be sustained * (exam question: why?)

  • Companies are in business to make profits not take losses
  • What’s to stop competitors from buying the low cost products and selling them later?
  • What’s to stop competitors from re-entering the market after prices have been raised?

Predatory pricing myth does not stand up to scrutiny

  • Assumes that price is the only factor in the purchase decision
  • The government agency defines the market.
  • Is the market airline transportation or transportation in general?
  • Does the market consist of retail stores only or all sellers?
  • Creative destruction and consumer choice

Predatory pricing: assumes a long term posture: not real world

  • My experience in marketing is the opposite: it is very difficult if not impossible to convince higher level management to take a long term view when it means sacrificing profit in the short term
  • Predatory pricing theory is a myth and a hoax that does not coincide with history or reality

Anti-dumping laws*

  • Emerged as a way of keeping foreign goods out of a market
  • Sherwood Medical Company example
  • Anti-dumping laws benefit special interests (for example, steel industry, textile industry) at the expense of consumers.
  • Anti-dumping laws harm consumers by making prices higher or in some cases, by making certain products unavailable

Who decides: market or government?

  • When the market regulates, customers decide
  • When the government regulates, bureaucrats decide (not politicians)
  • Profit and competition discourage inefficient or dishonest providers (security analyst exposed Enron not government agency)
  • “Government is not eloquence, it is not reason. It is force. It is a dangerous servant and a fearful master” G. Washington

Who do anti trust laws protect?*

  • Anti trust laws do not protect the consumer
  • They protect the industries they regulate from smaller competitors or foreign competitors with less political clout
  • Examples: Uber and Lyft versus taxis, sugar, steel, textiles

Computers and cell phones

  • Computers: no established large companies to use the force of government to stifle competition
  • Michael Dell and Bill Gates
  • Removal of government telephone monopoly. AT&T finally faced competition

Competition examples

  • Natural gas prices deregulated, prices dropped
  • Airline monopolies, prices dropped, travel made safer, more competition.
  • Trucking decontrolled, prices dropped. Big carriers faced competition
  • Telephone communication: prices dropped and innovation thrived

Anti-trust versus the free market

  • Anti-trust advocates view the world as static and unchanging
  • Free market advocates view the world as dynamic, changing, constantly evolving and getting better

Anti-trust versus the free market

  • Regulators want to control others, they think they know best
  • F.A. Hayek called this the “fatal conceit”
  • Regulators see the world as a fait accompli
  • Anti-trust advocates don’t understand or they don’t want to understand marketing

References and further viewing

  • You Tube: Milton Friedman Monopoly *
  • You Tube: Milton Friedman speaks-free trade consumers versus producers
  • You Tube: Monopoly, competition and antitrust Thomas Di Lorenzo
  • You Tube: Four things the state is not by Thomas E. Woods. Start at 33 minutes go to approx. 40 minutes *