Tuesday, August 19, 2008

Walter Williams discusses Freedomnomics

Walter's entire piece can be seen here:

By taking a couple of courses in economic theory, we could immunize ourselves from nonsense spouted by politicians and pundits, but in the meantime check out Professor John R. Lott's "Freedomnomics: Why the Free Market Works."

His first chapter is "Are You Being Ripped Off?" It addresses myths about predation where it's sometimes alleged that corporations will charge below-cost prices to bankrupt their rivals and then charge unconscionable prices. There's little or no evidence that corporations would choose predation as strategy; there are too many pitfalls. A major one is that in order to recoup losses from charging low prices to bankrupt rivals, the predator would later have to charge higher-than-normal prices. That would attract new rivals who might have purchased the bankrupt assets of the predator's prey and be able to undercut the predator's prices. . . .


Thanks, Walter.

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3 Comments:

Blogger Lawrence Low said...

Hi, nice postings there. I would like to share with you mine.

http://econsguide.blogspot.com

It's actually meant for my students.

October 31, 2008 at 10:28 PM  
Blogger Derek Flint said...

I believe there is plenty of evidence that corporations would choose predation as a strategy, with the ultimate goal of being able to charge unconscionable prices. After they become a monopoly many times they have the ability to control the sources of the products or resources that feeds their business model. This allows them to exclude new comers from ever getting started as competitors via various strong arm tactics. Just one example out of hundreds.. "We will continue to purchase 10 millon sub-assemblies per year from you at this price as long as you sell these units to my competitors at 2x my price, otherwise we will purchase these units from your competitor instead and at 1.5x the market price". Microsoft is already there, Walmart is well on its way. Such practice illegal? Can't happen here? Get real.

May 3, 2009 at 9:43 PM  
Blogger John Lott said...

Thanks for the note Derek. I have written an entire book on this topic that you might find of interest entitled: Are Predatory Commitment Credible? It is not that predatory practices are illegal that makes them rare, it is because of the threat of new entry that makes them hard to work.

May 4, 2009 at 12:31 AM  

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