Don’t Know Much About Economics
I’m not an economist. I’ve taken a grand total of four economics classes in my life. But lordy, lordy, I don’t need extensive training to know how insanely wrong this is:
Say Yes to Price Fixing
By John E. Tamny
The U.S. Justice Department recently fined British Airways (BA) and Korean Air $300 million apiece after they acknowledged price fixing on international flights. With rising fuel prices cutting into their profit margins, the airlines admitted to collusion with rivals over cargo rates and fuel surcharges.
As it turns out, the cooperation of both airlines saved each from fines double or triple the recorded amount. Perhaps relieved by the relatively small number, BA CEO Willie Walsh strongly denounced his firm’s conduct, saying, “Any anti-competitive behavior is to be condemned at British Airways or at other companies.”
But was their behavior anti-competitive?
The answer to that is, “Yes. Yes it was.” When two or more firms stop pricing their services competitively and start negotiating prices together, that is by definition anti-competitive. Because, y’see, they’re not really competing. They’re taking away consumers’ possibility to get cheaper flights with another service. Hence, it’s anti-competitive.
Just last week Southwest Airlines announced fare increases of as much as $10 each way due to rising fuel costs. The Associated Press account of Southwest’s decision noted that, “It was the low-cost carrier’s fourth fare increase this year, and other airlines quickly followed suit (emphasis mine).”
Southwest’s successful maneuver to increase fares raises the question of whether BA and Korean Air did anything different from Southwest. The latter merely used a press release to get its competitors to fall in line in terms of pricing, while the former entities simply got together and agreed on price changes.
You can’t be serious.
Southwest’s decision to raise fares is due to rising fuel costs. Amazingly, when fuel prices go up, airlines across the board will also raise their fare prices. Shocking, I know. Remember those supply-demand graphs you drew in Econ 101? This is where they’ll come in handy, Cheech:
Now, despite the fact that airlines in a competitive market will raise their prices in response to fuel costs, they are actually still competing with each other to deliver their services at the lowest cost possible. No firm is going to look at what Southwest did and go “HOLY CRAP!! THEY RAISED THEIR PRICES!! WE GOTTA RAISE ‘EM TOO OR NO ONE WILL USE OUR SERVICE!!” The only way that firms will intentionally raise prices more than they have to is if they’re not competing- in other words, if they’re colluding to keep prices higher than they normally would be.
God, this shouldn’t be difficult to understand.
Rather than anti-competitive behavior, it could just as easily be said that price-fixing is merely a harsh euphemism for competition.
Except that, you know, the point is they’re not competing. We’ve been over this about a trillion times already.
Wait, what’s that you say? You want to see Brad’s favorite handy-dandy illustration again?
If a town had one car mechanic, wouldn’t the arrival of second mechanic be an explicit signal to the first that his prices must remain competitive in order to stay in business? Assuming equality of skills, there would be natural price collusion that would occur free of both mechanics meeting in secret. They wouldn’t need to for the certainty that their customers would relay to each the prices that both charge, and both would eventually adjust to stay competitive.
Buh-buh-buh-but they’d be competing to see who can make their prices the lowest! Because the mechanic who charges less for equal service will generally get more customers than the mechanic who charges more! That’s the whole point of competition! It’s supposed to provide lower prices than if the two mechanics just came together and said, “Hey, let’s both overcharge our customers by the same amount so we can both make a ton of money!”
I’m losing my hair reading your column, Mr. Tamny. Please stop the madness.
ExxonMobil gas station owners don’t meet in secret with their counterparts at British Petroleum stations to agree on prices. They don’t because they don’t need to. By posting price signs in front of their gas stations, they’re communicating to each other the prices that will move their respective inventories. If one station chooses to raise prices, the other will presumably respond in kind.
Why the hell would they do that? I don’t know about the rest of you, but I’m more likely to go to the gas station that has lower prices. Thus, if gas stations want to keep customers using their pumps, they have a good deal of incentive to raise their prices as little as possible.
The point is, increases and decreases in gas prices are made in response to the price of oil. Since China and India are using a lot more energy nowadays, don’t expect them to go down anytime soon.
When we consider falling consumer prices, the same legal collusion occurs. Early adopters of mobile phones paid far more for monthly minutes than they do today. AT&T, Verizon and T-Mobile didn’t get together and agree on lower prices, but in advertizing their lower monthly charges, they regularly communicated to each other the general direction of rates. From wireless firms to carmakers to computer manufacturers, all manner of industries regularly announce prices to consumers, which is the same as communicating their pricing plans to competitors.
ARRRRRRGH, BUT THAT ISN’T COLLUSION.
KILL ME PLEASE. KILL ME NOW.
For regulators and government officials to try and draw a comparison between the actions of Southwest Airlines versus BA and Korean Air in regard to pricing is to make a distinction without a difference. As opposed to a method that companies use to maintain prices higher than the market will bear, price fixing is in the end a process by which businesses compete with each other. As such, regulations meant to keep this from occurring in private mean businesses will do the very same thing; albeit out in the open.
In other words, “I hate the evil gubmint so much that I’m willing to get shafted by colluding airline companies! HA, HA! TAKE THAT, BIG BROTHER!”
My day is now officially ruined. Thanks, TechCentralStation.
He’s pointing to an actual phenomenon but mis-labeling it, and ignoring the thing that should get the label.
It’s true that when one gas station posts its new, higher price, another can think, “Oh, so that’s what they think they can get away with. Maybe I can, too.” This can function as a rationale for raising the price.
But, as dear suffering Brad points out, that’s not competition. And all it would take is a third gas station owner to think, “Hm, they’re both raising their prices beyond what they have to be? Hot damn! I’m undercutting their asses and still making an acceptable profit. Plus, now, here comes VOLUME VOLUME VOLUME.”
Who is this clown?
Hey, if one airline can legally raise its price, then it’s doubly legal if two of them get together and fix the price.
It’s true that when one gas station posts its new, higher price, another can think, “Oh, so that’s what they think they can get away with. Maybe I can, too.” This can function as a rationale for raising the price.
Yeah, a bit, especially if you live in a rural area where there are very few gas stations and people don’t have options.
But when I drive home down (shudder) Route 9 every night and I need to fill up, I’m keeping my eyes out for the cheapest possible gas. Consumers who aren’t morons are doing the exact same. Thus, in the long run, it’s in the advantage of gas stations to keep prices lower than their competitors.
Part of the reason gas prices keep going up, too, is that gas in the US is a pretty ineleastic market- we have lousy public transport infrastructure and most people rely on their cars to get to work. Thus, people have to put up with price increases on at least some level if they want to make money. If we had better rail/bus/trolly alternatives, we might have options. But right now, we don’t.
Who the hell is John Tamny? All the NRO says about him is he spent “four years in the brokerage business” and lives in Washington; for all we know, he’s a ninth grade dropout–I saw one comment where he says most of Bush’s actions have been “rebukable”. If the NRO pays him more than 17 cents for his columns, that’s a classic example of the negative effects of an unfettered free market.
My experience working at a convenience store is that this is literally true. One of the manager’s duties each morning was to check three other gas stations in the area and change our price, up or down, to match whatever they were selling their gas for.
According to the operations manual the only exception to this was if our corporation was trying to influence the market up or down for their own reasons.
This is where private enterprise (the mob) really shines. They sit everyone down at a table, and explain that everyones prices are going up 10%, and that that extra money is going to protect the marketplace, and their collective kneecaps.
Southwest’s successful maneuver to increase fares raises the question of whether BA and Korean Air did anything different from Southwest.
That’s right. Southwest colluded with itself!
Oh, I see what the problem is. He thinks that “price fixing” is when a company sets the price at which they will sell a good or service. This is as opposed to the alternative, in which prices appear after you shake a Magic 8 Ball.
But using similar logic, conservatives say that they hate taxes, but I think that it is very taxing having to pay as much as I do for food each month! Is there really any difference between the government taking your money and private corporations taking your money?
Since we all agree that taxes are bad and minimal government interference into your life is good, why don’t we force businesses to cut prices? Then everyone can buy more stuff! In fact, using the Laffer curve, I can convince myself that businesses will make more money than they did before!
What the hell is “RealClearEconomics” and why would they ever hire this guy to be the editor?
“By posting price signs in front of their gas stations, they’re communicating to each other the prices that will move their respective inventories. If one station chooses to raise prices, the other will presumably respond in kind.”
then you have the Gulf station near my house, which prices it’s gasoline 5 cents cheaper than the stations on the other three corners of the intersection, with the biggest sign.
Sometimes it’s worth 5c/gal not to wait in line, but heck, I know who’s moving more volume… and the differential is huge.
“What the hell is “RealClearEconomics” and why would they ever hire this guy to be the editor?”
and is it related to NewClear Economics?
“But was their behavior anti-competitive?”
Uh, yeah, kinda by definition.
Edit: whoops, I should have read further ….
Is this cat single? Megan would looooooove him. They both miss the blinkeringly obvious in such a pseudo-literate manner. It’s the old “let’s write something that sounds calm and rational but is truly batshitty” trick. Collusion is competition? What?!
Why can’t capitalists be satisfied with having their crappy capitalism going around, capitalizing and stuff? Why do they have to keep rigging it? Like it wasn’t rigged enough already?
Maybe I just don’t understand insatiability. (I guess that applies to transhumatards too.)
In conclusion, Major League Baseball’s anti-trust exemption should be the norm because the Sherman and Clayton Acts are quaint.
Not too bright for a supposedly “techie” oriented website. Is this a wingnut site pretending to be “geeky”?
Why didn’t he just title his article I don’t know what “collusion” means? Sheesh.
This is as opposed to the alternative, in which prices appear after you shake a Magic 8 Ball.
I believe that would be collusion with the Magic 8 Ball.
You know what’s odd? Every McDonald’s I’ve been to has charged the SAME PRICE for a double cheeseburger!!! How can they get away with such obvious perfidy? Also, price tags on items let ANYONE who walks into a store and looks how much something costs! UNBELIEVABLE.
I guess what this guy is missing is that there is a big difference between raising your prices and taking the risk of merely hoping that your COMPETITOR will do the same (in other words risking loss of volume) and calling him on the phone and saying, “hey, let’s raise our prices the same so we can maintain the status quo wrt volume AND make more dough.” In the first instance competition is at least a possibility (though as you will observe, not guaranteed), in the second, it’s not even remotely possible.
Clearly the problem is advertising prices!! a Free Market demands that pricing be kept secret from competitors AND consumers, that way there can be no collusion on prices!!! No one will ever know what they are paying for anything. The man is a genius.
This article conveys a very deep, thorough, misunderstanding of business, economics, addition, reality, and even love somehow. Where is his editor?
This article conveys a very deep, thorough, misunderstanding of business, economics, addition, reality, and even love somehow.
Perfection attained!
Ya know, I have trouble balancing my checkbook, and even I know more about economics than this dweeb.
Southwest’s successful maneuver to increase fares raises the question of whether BA and Korean Air did anything different from Southwest. The latter merely used a press release to get its competitors to fall in line in terms of pricing, while the former entities simply got together and agreed on price changes.
If he had done just a tiny bit of research on airline pricing he would have found out that airlines signal their intentions to raise prices via reservation systems like Sabre and Amadeus every day. If US Airways wants to raise fares from LGA to BOS they load the new fares for flights a month or so out and if Delta matches the increase it will stick. If Delta decides not to raise their fares in response US Airways has no choice but to rescind their fare increase or lose market share. It’s a pretty efficient system and is a little different than the VP of pricing for US Airways picking up the phone and calling his counterpart at Delta to get him to play ball. Evidently for the execs at BA, Korean etc. the system was way too efficient for their tastes so they broke the law to get around it and that’s the point this clown can’t grasp. It’s a little different with Southwest because in most markets their lower operating costs allow them to dictate what the fares will be to United, American, etc. If they want to raise fares the old line network carriers will fall in line every single time since they’re usually operating at a loss on those routes. It’s a question of pricing power and press releases have fuck all to do with it.
My experience working at a convenience store is that this is literally true. One of the manager’s duties each morning was to check three other gas stations in the area and change our price, up or down, to match whatever they were selling their gas for.
That’s a perfect example of competitive pressure, right there:
If the competition lowers their price below your cost, you either have to meet the price and lose money for a while or keep your price at your cost and hope for the best.
If the competition raises their price, you have some wiggle room to raise yours, also. If one competitor raises its price, each other competitor must decide whether to keep prices the same and hope for volume or raise their own prices and hope the other competitors do also.
Either way, your boss did not call the other gas stations and decide what the price was today: the other gas stations made pricing decisions independently based on their cost, volume, and market pressure, and your boss responded to their decisions. And when corporate did decide to move the market, they made their pricing decisions independently, too.
The reason that alsmot every airline raises fares when Southwest does is because Southwest is generally the lowest fare in the industry. The other airlines must keep their prices lower than their actual costs (hence the reason they lose money) to compete with Southwest, generally setting their prices a fairly constant percentage over Southwest (based on how much they think customers will pay for their value adds).
Whenever Southwest raises its price, just about every other airline also adjusts their prices up so they can lose a little less money for a while. If another airline out there is breaking even at the current fare or willing to continue taking loses to gain market share, that airline would just not raise their prices when everyone else did and advertise the hell out of that face.
But yeah, this guy is confusing advertising a price with colluding on a price. I wonder if he knows that actively concealing your prices from your customers (and therefore your competitors) is kind of illegal too, depending on the industry you’re in and the methods by which you do it.
My God, I’ve never actually felt the burning of Teh Stupid before. This one actually singed my laptop screen.
I’ll guess Mr. Tammy doesn’t know much about trigonometry, either.
Trigger-nometry, maybe?
I’ve never taken an economics course in my life…and yet even I have no difficulty identifying Mr. Tamny as a complete goober.
Black is White!
Up is Down!
War is Peace!
Collusion is Competition!
If this dork had ever really had to, er, compete for business in a given marketplace, he would understand that price is not the only competitive arrow in the quiver. You can collude on price all you want, but issues of capability, quality, capacity, and integration contribute to business volume every bit as much as pricing.
He seems to think that you can use price as a revenue potentiometer, dialing up volume when prices are low, dialing it back when they are high. It’s like a movie set – there’s more to those buildings than their front edifice…
mikey
Jeebs. Another über-libertarian apologist for the obvious flaws of their capitalist dystopia. He’s got another one here on why trade deficits are a good thing.
You know you’re in liberlalaland when they haul out the peurile anecdotes to explain Big Looney Concepts. Next step: widgets!
Last time I checked…the term “harsh euphemism” is an oxymoron.
Mr. Tammy? Just moron.
“I’ll guess Mr. Tammy doesn’t know much about trigonometry, either.
Trigger-nometry, maybe?”
Actually, “Triggernometry” was a favorite book of my youth; I found it in the library, among the seldom-checked-out books, and had a blast reading it. It was published about 1920, I think, and was all about the “real” stories of Wyatt Earp, “Duckbill” Hickock*, John Wesley Hardin, and several more-deserving-but-less-well-known western gunmen. Fascinating reading for a teen, I’ll tell you.
And many of the stories were as close to reality as Mr. Tammy, it appears.
Ed
* Really! Supposedly, “Wild Bill” had somewhat pronounced protruding lips and his detractors didn’t call him “Wild Bill” at all.
Last time I checked…the term “harsh euphemism” is an oxymoron.
I believe that the word our author was searching for was dysphemism. But then, If Mr Tammy knew how to operate a dictionary, this whole tragic trainwreck of an article could have been avoided.
Alternate theory: The Federal Trade Commission is about to lose a commissioner and our Mr. Tammy knows just how to campaign for the open position.
Shorter John Tamny: the free market is always the best option except when it hurts corporate profits
This guy has clearly never run a retail operation before. Or a wholesale operation. Or any sort of daily business, I’d guess.
“You can collude on price all you want, but issues of capability, quality, capacity, and integration contribute to business volume every bit as much as pricing.”
Not to quibble with your overall point, but collusion effectively destroys the relevance of capability, quality, capacity, and integration, i.e. positive symptoms of “competition.” This is why collusion is inherently anti-competitive. I would argue it the other way around – the historical purposes and needs addressed bu the Sherman Act is the understanding that we can have all of the positive competitive elements we want, but if we permit anti-competitive behavior, all of those competitive elements will be for naught.
Let me preface this to say I have no formal education, so I might be getting the words a little wrong.
But if you lower your prices, thus adding a lot of new customers quickly, and do not have the capacity or infrastructure to manage that level of production, you will miss deadlines and ship defectives. And that will very quickly generate for you in the marketplace a reputation for dishonesty and slipshod work. And at that point, no amount of price cutting will win you back that business.
I’ve seen it happen, and I’ve benefited from it. All I’m saying is you cannot sustain a competitive advantage on price alone. So to that extent, collusion on price alone will not be a successful strategy.
But in no way should that be read as an endorsement for collusion…
mikey
I think everybody I like should be able to do what they like and call it what they like. Everyone else can suck it.
I call it “Tim”…
mikey
Is it really beating puppies to death with a hammer or is it what economists know as Tim? I say Tim and here’s why.
Timbits? The national symbol of Canada?
I don’t know anything about the airline business, but I do remember a quote attributed to that class-A prick, Robert Crandall, who ended up as CEO at American Airlines.
In the earliest days of airline deregulation talk (under that anti-capitalist, Jimmy Carter), Crandall told a Hill staffer, “You’re not going to deregulate the industry – you’re going to kill it.”
I even remember this episode of the PBS SnoozeHour:
Crandall changed his song by the time he retired:
As anyone who’s flown, say, in the last 10 years will tell you, that wonderful idea of having airlines compete on the basis of cost has really worked out well. What’s a few social offsets among friends?
Maybe he was confused by how collusion and competition both start with a “C”.
Off topic- I think Megan made Gavin cry today, with her posts calling for the Jena 6 to be jailed. Anyone know how to flood her email with copies of “Letter from a Birmingham Jail”?
I already chided her over at FMM, fwiw.
I think I’m starting to understand why Republicans can’t run a budget worth crap.
Off topic- I think Megan made Gavin cry today, with her posts calling for the Jena 6 to be jailed.
Oh, Jeebus. Just stopped by Megan’s place. After calling for the Jena 6 to be jailed, she’s written another post saying, in effect: “Oh, these are the facts? Ummm…never mind.”
“Oh, these are the facts? Ummm…never mind.”
Get a Jonah Goldberg for your magazine today!
OT but: Hey diffbrad, congrats on attracting your first regular troll-person at FMM. You’ve arrived!
Scary thing is, compared to the other content of today, the author of this article seems only competitively stupid.
Plus I got slagged on Janegalt.net. Admittedly, that post was not my finest hour in a number of respects, but still, I feel loved.
a Free Market demands that pricing be kept secret from competitors AND consumers, that way there can be no collusion on prices!!! No one will ever know what they are paying for anything.
Oddly enough, my local Taco Bell operates on this system. You order what you want, they give you a random sack of food, they charge you a random price, and then they give you a random receipt that bears no relation to what you ordered, what you received, or what you paid.
In the long run it doesn’t matter, since all Taco Bell’s food tastes the same anyway, but it’s a marginally more interesting dining experience than one of those stodgy, unimaginative places where they give you what you ordered and charge you the right price.
Bob Crandall was indeed an insufferable prick and he knew from price fixing.
http://www.time.com/time/printout/0,8816,953755,00.html
And the reason airline execs wanted to keep their industry regulated in the ’70s was due to the very anticompetitive nature of those regulations.They were not designed to protect consumers.The cost of air travel today adjusted for inflation is way lower than in the regulated era. So are airline wages but I guess that’s the silver lining for fuckwit libertarians and republicans.
In the long run it doesn’t matter, since all Taco Bell’s food tastes the same anyway, but it’s a marginally more interesting dining experience than one of those stodgy, unimaginative places where they give you what you ordered and charge you the right price.
I got stuck in the Las Vegas airport once, and the airline gave us coupons for food. Somehow, the least bad choice seemed to be Taco Bell. That was the last time I ever went to Taco Bell, I think it has to be the worst fast food evuh!
P.S. That was back in the 90s.
I am endlessly fascinated by taco bell. After my blood pressure forced me to give up all fast food outlets, TB’s the only one I’ll cheat and go into.
See, the thing is, Sidhe’s right – all the food is exactly the same. What they offer is different textures instead of flavors. In many taco bells, you can order “Two crunchy, one chewy, one soft and a soda”. Somehow, I think that’s pretty cool….
mikey
Good god, what were the other choices?
Ah, D.Sidhe, I think I know exactly which Taco Bell you’re referring to! Would that be the one at the bottom of East Hill across from the Ptomaine In The Box?
Forgot I wasn’t posting Bikini Grill lyrics today . . .
The Riot Grill
Not too bright for a supposedly “techie” oriented website. Is this a wingnut site pretending to be “geeky”?
Short answer: Yes. TCS has been around for a while, and the letters used to stand for “TechCentralStation” instead of whatever they do now, and maybe, possibly, at one point in their history they were an actual techie news site, but for as long as I’ve been aware of their existence, they’ve been just another WingNutDaily.
Thanks AWAJ, I’m not always up on these things. I took a look at their front page and some of the headlines don’t seem to fit the usual wingnut talking points. Yet the shear stupidity of this post screams wingnut. Maybe they are one of those “research” sites that let anyone post just about anything they want? The bar certainly isn’t very high.
noen: it’s technolibs a go go there, not the usual ordinary wingnut crap. And all the more frightening because they’re literate & “educated.” The TCS stands for Technology Commerce Society. I note they can’t sell any advertising, however.
Calling all Econonerds.
The dread Krugman has stirred in the deep, and issued forth a foul and pestilent blog.
http://krugman.blogs.nytimes.com
http://www.sourcewatch.org/index.php?title=Tech_Central_Station
Executive summary: TCS was founded by James K. Glassman, a fellow of the AEI who was recently appointed by Bush as chair of the Broadcasting Board of Governors (essentially, the folks in charge of broadcasting pro-US propaganda overseas–they oversee Voice of America, Radio Free Europe, etc.) TCS used to be owned by the DCI Group, a Republican lobbying company, but they recently sold it to its editor-in-chief Nick Schulz, who prior to joining TCS worked for Fox News. In short, TCS is and always has been a creature of the Wingnut Web.
And all it would take is a third gas station owner to think, “Hm, they’re both raising their prices beyond what they have to be? Hot damn! I’m undercutting their asses and still making an acceptable profit. Plus, now, here comes VOLUME VOLUME VOLUME.”–MrWonderful
Men of the Trapezoidal Table: We can’t afford to compete with the Lousy Cheating Evil Gas Kingdom’s connections with Certain 3rd World countries, that are allowing them to undercut our prices at the pump! BUT we can bribe a few Senators in the Flyover States to enact legislation that will allow us to adulterate gas with up to 25% corn squeezin’s, made from cheap govt. surplus corn! INNOVATION, INNOVATION, INNOVATION! (Sort of.)
This guy has clearly never run a retail operation before. Or a wholesale operation. Or any sort of daily business, I’d guess.–jnfr
Welcome to the world of the Ivory Tower/Think Tank Economic Evangelists. They’re the people who engineered the “soft landing.”
In the long run it doesn’t matter, since all Taco Bell’s food tastes the same anyway, but it’s a marginally more interesting dining experience than one of those stodgy, unimaginative places where they give you what you ordered and charge you the right price.–D. Sidhe
But does your Taco Bell feature random gang violence for diners’ entertainment?
If they’re going to specialize in “randomness” , they should do it up right! IMHO
If all airlines competing with Southwest moved their prices the same amount at the same time… It’s not different, yes.
But he’s got the rest backwards.
Had the initial commenter bothered to read what I wrote, in both instances the airlines raised prices due to rising fuel costs. That was the point. And no sir, you don’t know much about economics.
Because if you did, you would know that profits are what attract competition. So even if two, three or four firms colluded in some way that drove prices up past their normal market level, the consumer would ultimately win due to the market entrance of others eager to capture these economics.
I think everyone on the page would do well to be a little less emotional, and more measured in commenting on these things.
the consumer would ultimately win
That’s right! If I beat you up for your lunch money and take it YOU WIN because in the future someone might add security that will forbid the taking of lunch money!
John Tamny has obviously taken “Introduction to Microeconomics” and obviously NOT taken any courses higher than that. Hell, even in most intro courses they should cover oligopolies, monopolistic competition, barriers to entry, externalities, economies of scale and all the other real world things that make his statement false.
To review: for his statement to be correct, here are the required assumptions, all of which MUST hold:
* Many small firms, each of whom produces an insignificant percentage of total market output and thus exercises no control over the ruling market price.
* Many individual buyers, none of whom has any control over the market price – i.e. there is no monopsony power
* Perfect freedom of entry and exit from the industry. Firms face no sunk costs – entry and exit from the market is feasible in the long run. This assumption ensures all firms make normal profits in the long run.
* Homogeneous products are supplied to the markets that are perfect substitutes. This leads to each firms being passive “price takers” and facing a perfectly elastic demand curve for their product
* Perfect knowledge – consumers have readily available information about prices and products from competing suppliers and can access this at zero cost – in other words, there are few transactions costs involved in searching for the required information about prices
* No externalities arising from production and/or consumption which lie outside the market
People who’ve taken only econ 101 are even worse than people who’ve taken no economics at all because they actually think they know what they are talking about. I could go on and on about how the airline industry violates almost every single one of those assumptions.
[…] John Tamny is at it again: And no sir, you don’t know much about […]
J.T.,
Just because you believe you know something doesn’t mean you actually do. Your writing is simply asinine.
Because if you did, you would know that profits are what attract competition. So even if two, three or four firms colluded in some way that drove prices up past their normal market level, the consumer would ultimately win due to the market entrance of others eager to capture these economics.
Except for the fact that the colluding firms are also going to collude to keep out competition. In many places that means upstarts get their throats cut before they can open their new competing business.
Go to many places in the third world and try to compete with the local business. I wont send flowers to your funeral.