From: Billy Brown (bbrown@transcient.com)
Date: Mon Apr 17 2000 - 19:56:04 MDT
Charlie Stross wrote:
> On Mon, Apr 10, 2000 at 05:38:50PM -0500, Billy Brown wrote:
> > No, a free market requires that companies:
> >
> > 1) refrain from using physical force to coerce others
> > 2) abide by the terms of any contracts they voluntarily agree to
> > 3) refrain from committing fraud (in a narrow sense) in the course of
> > business dealings
> >
> > That's it. Nothing else.
>
> I don't agree.
>
> A free market requires that companies don't use physical force to coerce
> others; it _also_ requires that they don't maliciously try to damage
> a competitor by using bribes to remove their customers. I use the term
> "bribe" here in the sense of some inducement that ties the acceptor into
> some form of behaviour.
If you were talking about bribing government officials to misuse the power
of the state, I would agree - although I think the idea of establishing a
rule of law in the first place already covers this.
In the sense that you mean, however, the idea makes no sense. The goal of
any business is to "maliciously damage" all of its competitors to the
greatest extent possible. There is no meaningful difference between damaging
your rival by producing a better product than he does, by selling it for
less than he charges, by giving his customers a special 'competitive
upgrade' price, or by paying cash to anyone who will sign a contract stating
they won't use his product. These are all manifestations of the same
process.
If you think it makes sense to ban this kind of behavior, you aren't arguing
for regulation at all. You are arguing that markets are inherently
unworkable and should be abandoned in favor of some other system.
> Classic case: Microsoft's offer (and threat)
> to Vobis, that they'd supply Vobis with MS-DOS and Win 3.1 licenses
> for a pittance, _and_ buy up their existing DR-DOS licenses, _if_ Vobis
> signed an exclusive deal with Microsoft (to supply MS-DOS on _every_ PC
> their sold). This action wasn't taken in order to make Microsoft money;
> it was taken in order to remove a major customer from Digital Research
> and _prevent_ them selling back into that market.
Well, no kidding. So what? A free market is not some feeble slipshod
contraption that has to be constantly guarded against the possibility that
someone might actually <gasp!> play to win. Instead, it is to be expected
that almost all organizations in the market will constantly be engaged in
this sort of behavior. That is how markets work.
If you leave the market free to work, instead of immediately calling for
government intervention, you will discover that it deals with these
'problems' just fine. As Standard Oil discovered a long time ago, you can't
eliminate competition by buying out all your competitors. If you try it,
that just encourages people to start up competing businesses, sell them to
you, and then turn around and use your money to set up still more
competitor. In the end you're just giving away money to your rivals.
> A second point: you didn't ask what the consequences of allowing cartels
> might be. For example: personnel costs are a major overhead for all
> companies. Assume a cartel forms; the members can all agree to cut
> their wages by 50%. The usual employee response -- walk to someone who
> pays a sensible wage -- is no longer valid in this scenario because
> there is a conspiracy to set prices between the companies in their market.
Cartels have the classic problem of any conspiracy - the more successful
they are, the greater the rewards are for someone who cheats. In a medieval
economy, with a tiny number of competitors in any given market and virtually
zero chance of new competitors moving in, cartels still needed the force of
law behind them to hold together. In the modern world, they are possible
without government intervention only in those rare (and becoming rarer)
instances where some scarce natural resource vital to the business is
controlled by a very small number of producers.
In the computer industry, the idea of a cartel is downright silly. Your wage
cartel could never get started, because the first companies to try it would
immediately loose all their skilled workers to companies that still paid
market wages. Even if you miraculously got tens of thousands of independent
businesses to all sign up at once, each member would be under constant
pressure to pay a little extra for the best workers. It won't be long before
someone caves in, and they you go right back to competition.
In summary, cartels are inherently unstable in a free market. They require
their members to act against their own short-term self interest, and they
necessarily create incentives for their members to break their own rules. I
know of no example of a private cartel operating in a free market. Even in
partly-socialized markets, where the competition that would normally bring
them down has been hobbled by government regulation, cartels tend to be both
rare and short-lived.
> > Exactly what companies compete on is up to their customers.
>
> Not really. The _final_ consumers probably never get a say, if there's
> a supply chain. I don't get a choice in the products on sale in my local
> supermarket; the supermarket decides what it's willing to stock, and all
> I get to do is choose between brands.
That is true only if the supermarket has no competitors. If you have three
supermarkets, six drug stores, and thousands of online stores all competing
for your dollars you will find the middlemen spending big bucks to try to
figure out what you want them to stock.
> One of my co-workers used to work next to the Censor for Scotland. The
> censor was simply the buyer for all videos, computer games, and books
> at the largest distributor chain in Scotland, one with 30% of the market.
> If he chose not to stock something, the _other_ distributors would avoid
> it on the assumption that the something wouldn't be profitable -- thus
> locking the something out of 90% of the retail market.
>
> This guy had no legal standing, was not a government employee, and
> officially didn't exist. Nevertheless, he kept videos he disapproved of
> out of a national-level market, and there was no market feedback to let
> his employers know that what he was doing was 'wrong'. (After all,
> if nobody sells it, its sales potential is zip. Right?)
I didn't say free markets are perfect. I said that you can't make them
better by getting the government involved. Or would you really prefer to
have a government agency in charge of mandating what products distributors
must and must not carry? Somehow, I suspect that the number of 'banned'
videos would have been a lot higher if the matter had been subject to public
debate.
Economies do tend to have low-competition industries, especially in
unglamorous sectors like distribution and sales. However, even there things
tend to improve over time. If distributors don't give customers what they
want, that creates a profit opportunity that others can exploit. Sooner or
later someone always steps up to fill the gap - you can order those 'banned'
videos by mail, after all, or on the Internet, or at specialty stores that
are willing to go around the distributors.
Or at least, that has always been the case in America. If it doesn't seem to
be true where you live, I'll bet you there is a law or three making sure it
doesn't happen.
> Please point me at a controlled crossover experiment that verifies this
> experimentally. Until you can do so, I'm going to take this as just more
> libertarian polemic.
I love the way you casually dismiss a major school of economic and political
thought with a shrug and an offhand label. Maybe it'll work for me, too?
Let's see:
<begin tones of solemn, authoritative pronouncement>
Can you provided me with references to the repeatable, double-blind
experiments that were conducted to verify your hypothesis? No? Well, then, I
shall dismiss your argument as just one more example of socialist poppycock!
<end tones of solemn, authoritative pronouncement>
Did I convince anyone? No? I didn't think so.
Look, if you want to argue about whether or not markets work at all, I'll be
happy to start a new thread on the topic. I've got an entire bookshelf of
references for my position, from the days of the Roman Republic right up to
the present. Socialism, OTOH, has nothing but vague intuitions and a long
track record of failure. I think that we both know who's going to have the
most evidence at the end of the day.
Billy Brown
bbrown@transcient.com
http://www.transcient.com
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