tag:blogger.com,1999:blog-5404820640426099135.post2838624897499645348..comments2023-10-31T00:46:35.316+13:00Comments on Anti-Dismal: Lower prices are anti-competitive! (updated x3)Paul Walkerhttp://www.blogger.com/profile/13731003529546075700noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5404820640426099135.post-75011510917930923872009-05-17T13:32:00.000+12:002009-05-17T13:32:00.000+12:00Surely Intel can use its dominance in the market t...<I>Surely Intel can use its dominance in the market to make low prices (or rather, lower the return on investments for new firms) a barrier to entry ?</I>But surely of all the possible barriers to entry, "low prices" must rank up their with "better product" as one of the least pernicious.<br /><br />Consumers benefits from competition because of lower prices and better product. If a firm drives competitors out of business because of lower prices and better product, then where is the harm?<br /><br />You have to hypothesize that the company is only competing on superior price and product in order to later charge higher profits in the future. But if low prices are the barrier to entry, won't another firm then join in competition once those low prices are raised?<br /><br />The idea that if there is not a stronger AMD now, then there could not be a competitor in the future whenever Intel raised prices is possible, but doubtful. Corporate graveyards are filled with companies that dominated their market with superior price and product, and then failed to competitors that came out of nowhere. Especially in the computer business, where new competitors arise seemingly overnight.John Thackerhttps://www.blogger.com/profile/15269867695937765049noreply@blogger.comtag:blogger.com,1999:blog-5404820640426099135.post-34665820387953885882009-05-14T16:26:00.000+12:002009-05-14T16:26:00.000+12:00Matt. Never really bought the predatory pricing st...Matt. Never really bought the predatory pricing story, for reasons that go back to McGee (1958). As Louis Plips [Competition Policy: A Game-Theoretic Perspective, Cambridge: Cambridge University Press, 1995, p. 204] points out that predatory pricing is a real possibility only when the following five conditions are simultaneously met: 1) The aggressor is a multimarket firm (possibly a multiproduct firm). 2) The predator attacks after entry has occurred in one of its markets. 3) The attack takes the form of a price cut in one of the predator's markets, which brings this price below a current non-cooperative Nash equilibrium price at which the entry value is positive for the entrant (possibly below a discriminatory current Nash equilibrium price with the same property). 4) The price cut makes the entry value negative (in present value terms) in the market in which predation occurs. 5) Yet the victim is not sure that the price cut is predatory. The price cut could be interpreted by the entrant as implying that its entry value is negative under normal competition. In other words, the victim entertains the possibility that there is no room for it in the market under competitive conditions. The most obvious point here is that these conditions are unlikely to be met.Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-5404820640426099135.post-41135760091743317712009-05-14T15:42:00.000+12:002009-05-14T15:42:00.000+12:00Predatory pricing. If the barriers to entry are s...Predatory pricing. If the barriers to entry are significant, than cutting prices can be anti-competitive by preventing competition and keeping prices above their competitive level.<br /><br />I think the microchip industry is likely to have significant barriers to entry. Given the limited number of firms in the industry I can sort of see why europe could be looking into it.<br /><br />Also I am not sure that we can say this is the result of intel cutting prices - prices have been falling because of technology. The question is - are they precluding entry in order to keep prices higher than they would have been in the competitive case. The CPI graph doesn't inform this question at all ;)Matt Nolanhttps://www.blogger.com/profile/05615455113796090765noreply@blogger.comtag:blogger.com,1999:blog-5404820640426099135.post-85397146635806857422009-05-14T15:22:00.000+12:002009-05-14T15:22:00.000+12:00Surely Intel can use its dominance in the market t...Surely Intel can use its dominance in the market to make low prices (or rather, lower the return on investments for new firms) a barrier to entry ? Microsoft surely has the same intent when it gives away IE for free so no other firm can compete, that way it can reap the benefits of control of the market, preventing others possibly undermining its monopoly.<br /><br />FWIW, I think Intel has indulged in anti-competitive behaviour, and that consumers have definitiely benefited from the comptetion that AMD has brought to the chip market. If Intel were unrestrained, they could drive AMD out more rapidly, and the competitive gains would have ceased earlier.<br /><br />That may not be the entire argument, but it does show the basis on which the anti-competitive argument for lower prices is built. Consumers benefit from competition, competition law is aimed (however badly) at trying to maintain competition. Intel are a near monopoly, trying to become an actual monopoly, by way of pricing policies designed to drive a smaller competitor out of business. Reasonably clear ?Ed Snacknoreply@blogger.com