Against pvn, Part 1

[bobman0330]

As I've mentioned before, I believe that pvn's opinions on various and sundry topics to be incorrect. If he chose to write them down on paper, they would not be worth the paper they were written on. Therefore:
1. He would be wise not to waste paper writing them down.
2. I will use the internet (no marginal costs for writing more stuff: perfect for debating sub-paper-value ideas) to rebut his wacky anarchist theories.

WACKY ANARCHIST THEORY #1: The government should not prohibit anti-competitive practices (monopolies, cartels, price-fixing, etc.). Market forces will defeat any monopolist who attempts to take advantage of his position by raising prices.

SANE NON-ANARCHIST COUNTEREXAMPLE:
Imagine an industry which requires substantial capital (physical or intellectual) to start a business. A good example is computer processor manufacturing. As a result of the high initial costs and the large fixed costs (e.g., R&D. Once you develop a microchip, you can build as many as you can sell for a small marginal cost. Therefore, there are substantial economies of scale.), the market is dominated by 2-3 major manufacturers. Call them Imtel and AMD' (anyone remember the name of that third company that use to make CPUs? Started with a C, i think). Furthermore, imagine that Imtel has a 75% market share, and AMD' 25%. Both companies spend about the same fraction of their budget on R&D. Since Imtel is spending 3 times as much, they quickly develop better chips and production methods and drive AMD' out of business with their superior, cheaper chips. Awesome.

Eventually the patents on Imtel's innovations run out, and Imtel gets tired of providing cheap excellent products when there is no competition. They double their prices, leading to groans of anguish from consumers. An enterprising young market-anarchist decides that the market is ripe for a new firm, PVN Corp., to take on the aging giant. Its unnamed founder goes to banks, VC firms, etc., and eventually scrapes up the $10 billion necessary to start a processor company, buy the equipment, duplicate Imtel's still-patented research, and build customer lists. PVN Corp. rolls out its identical line of microprocessors at half the price of Imtel. Profits are thin, because PVN Corp. is working just above cost to build a following.

Satisfied with his work, the CEO goes on vacation for a month. He returns, expecting his subordinates to have many glowing tales of success. Instead, he finds out that Imtel cut prices 75% the day he left, and has been selling at huge losses for the past month, relying on their capital reserves to pull them through (this does not have to be the case. Imtel could undercut PVN Corp. just by economies of scale, but I want to broaden the example). Having lots of debt and selling 0 products is bad, so PVN goes bankrupt. Creditors receive hardly anything, and Imtel quadruples prices the next day.

Not to be deterred, another aspiring entrepreneur decides that he too will challenge the giant. After all, they can't keep selling at a loss forever. He goes around to banks, VC firms, etc. But, surprise, he is unable to find any backers. Everyone is cowed by Imtel's willingness to smother competition. The monopoly remains, and high prices prevail...