Welcome to Keith's night. Don't cry, don't anyone in the libertarian Institute. Here is Thomas soul on monopolies and predatory pricing in his book. Basic economics, a citizen's Guide to the economy. One of the remarkable theories, which has become part of the tradition of antitrust. Law is predatory pricing. According to this Theory, 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, forcing it out of business when the smaller companies resources run out then having acquired a monopolistic position. The larger company will raise its prices. Not just a previous level but to a new and higher level in keeping with its new monopolistic position. Thus it recoups its losses and enjoys above normal profits thereafter at the expense of the consumers, according to Theory of predatory pricing. One of the most remarkable
things about this theory. Is that those who Advocate it seldom even attempt to provide any concrete examples of when this ever actually happened, perhaps, even more remarkable. They have not had to do. So even in courts of law in antitrust, cases Nobel prize-winning Economist. Gary. Becker said, I do not know of any documented predatory pricing case yet.
Both the A&P Grocery chain in the 1940s. s and the Microsoft Corporation in the 1990s were accused of pursuing such a practice in antitrust cases, but without a single example of this process having gone to completion instead their current low prices in the case of A and P and the inclusion of a free internet browser in Windows software, in the case of Microsoft have been interpreted as directed towards that end though, not having actually achieved it since it is
impossible to prove a negative the Use company cannot disprove, that it was pursuing such a goal. And the issue simply becomes a question of whether those who hear the charge choose to believe it. Predatory pricing is more than just a theory without evidence. It is something that makes little or no economic sense. A company that sustains losses by selling below cost to drive out, a competitor is following a very risky strategy.
The only thing that it could be sure of is losing money initially whether it will ever recover enough extra profits. To make the gamble pay off in the long run is problematical whether it can do. So and escape the antitrust laws as well is even more problematical and antitrust laws can lead to millions of dollars in fines and/or, the dismemberment of the company, but even if the would be Predator manages to somehow overcome these formidable
problems. It is by no means clear that eliminating all existing competitors will mean eliminating competition, even when a rival firm has been forced into bankruptcy. It's 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 perhaps at a low distress sale prices, for both the physical equipment, and the unemployed workers enabling the new competitor to have lower costs than the old.
And hence, to be a more dangerous competitor able to afford to charge lower prices or to provide higher quality at the same price, Thomas ol than cites the example in 1833 of the Washington Post purchase by Eugene Meyer bankruptcy can eliminate particular owners and managers but it does not eliminate competition in the form of new people who can either take over an existing bankrupt Enterprise or start their own new business from scratch in the same industry,
destroying a particular, competitor or even all existing competitors does not mean destroying competition, which can take the form of new firms being formed in short, predatory. Thing can be an expensive Venture with little Prospect of recouping, the losses by subsequent Monopoly profits. It can hardly be surprising. That predatory pricing remains a theory without concrete examples. What is surprising is how seriously that unsubstantiated theory is taken in antitrust?
Cases. Thank you for watching Keith Knight. Don't try it on anyone in the libertarian Institute.