Feb. 14, 2011 - Freedomain Radio - Stefan Molyneux
05:46
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| Hi everybody, this is Stefan Molyneux from Free Domain Radio. | |
| These are the most common market myths debunked. | |
| Let's try and do four in four minutes so you can get more at freedomainradio.com. | |
| So let's look at the first one. Monopolies in a free market. | |
| One company will swallow up all the others, yay, like a shark with little fishies, and become a monopoly and then jack up the prices and shaft the consumers. | |
| This really can't happen in a truly free market because, let's say, this big company on the left wants to buy up the first company. | |
| Well, it's going to cost it maybe $100 million. | |
| Now, that's money it has to borrow, or it has to reduce payouts to its shareholders, or it has to jack up the prices of its products to cover that, so it's already putting itself at a competitive disadvantage by buying the other company. | |
| But let's say it's worthwhile and it makes sense in the long run. | |
| Well, there's fewer competitors, which means that the next company it buys is going to be more expensive because it's worth more because there are fewer competitors. | |
| The next company is going to be $150 million. | |
| The third company it buys is going to be like $250 million. | |
| And this one's going to be like $400 million. | |
| And the next one is going to be $750 million because every time it buys a company, the next company it wants to buy becomes that much more valuable. | |
| And so when it's faced with this one last competitor, this first company that's trying to become a monopoly, it's so laden down with debt. | |
| And it can't compete with this other small company that isn't laden down with debt, and so it's not going to work out. | |
| No board of directors would accept such a plan. | |
| So it can't happen in a free market. | |
| Ah, what about collusion? | |
| So all of these manufacturers are going to get together, and they're going to agree to raise the prices on consumers and shaft them that way. | |
| Hey, it could happen, and it certainly has been tried many times in the past. | |
| Here's what happens in a free market. | |
| So... They're all going to start raising their prices together. | |
| And it goes above this black line. | |
| So the dollar is the gap, right? | |
| They're making all this excess profits. | |
| Hookers and blow. Hands over fist. | |
| We can bathe in golden showers of money. | |
| However, each one of these companies has an incentive to dip just a little bit in the price. | |
| So let's say this third company here dips down just a little bit. | |
| It's still making a money hand over fist. | |
| But now what's going to happen is because everybody else has colluded to have high prices, This one company, the first company that decides just to dip a little bit, even informally, even just to its friends, is going to start taking all the business away from everyone else. | |
| They're all going to shrink and this company is going to grow. | |
| So the moment one of them breaks ranks, and they always do in a free market, the moment one of them breaks ranks, it swells. | |
| Everybody else begins to lose business, and so they all start collapsing their prices back down, and sometimes they go even lower. | |
| Now, the exception to this is when these companies can get the government to force higher prices or to make a manufacturing association membership forced to put licensing on or something like that. | |
| But in a truly free market, whenever companies have historically tried to raise prices in a free market, one of them breaks ranks, grabs half the business, everybody else panics and lowers their prices, and it all collapses. | |
| That's the way it works. Undercutting. | |
| Well, so we've got here, we've got a whole bunch of small companies and some big monster company comes in. | |
| And it has artificially low prices. | |
| It goes into debt to subsidize prices to the consumer, thus driving these guys out of business. | |
| And then it begins to jack up all the prices to make up for the lower prices, and the consumer is then shafted. | |
| Well, the problem is that if you have artificially low prices, that causes you to incur a large amount of debt. | |
| And if a company comes in and starts to try and drive out other businesses by artificially lowering its prices, all the entrepreneurs in the world will say, hey, no problem. | |
| Let's go into this business the moment that all these other companies are gone and this guy has to raise his prices to much higher than they were before to pay off the debt. | |
| That it incurred to artificially lower its prices. | |
| So let's wait till all of the competitor is gone and we have only one company with a big debt load that has to raise its prices. | |
| And then we'll go in and we'll undercut them right away. | |
| It'll be beautiful. We'll make money hand over fist. | |
| This is always what happens, which is why companies don't tend to do this. | |
| Planned obsolescence. Companies cripple products in order to sell more. | |
| Well, the failure rate for consumer electronics is 3-5%, and that's not too bad. | |
| You can't really engineer stuff that minutely to fail within that time frame. | |
| But here's the problem. | |
| So this company here creates a dishwasher and cripples the dishwasher so that it breaks a year or two after its warranty ends. | |
| Okay. And they hope to sell another dishwasher. | |
| Let's say this is an ABC company. | |
| They say they make ABC dishwasher. | |
| Well... The problem is that if you buy the dishwasher from ABC company and it breaks, well, there's lots of other people who want to sell you dishwashers. | |
| This is the problem, right? So let's say your ABC dishwasher breaks and then there's company XYZ and QBF and CFU and all this kind of stuff. | |
| They all want to sell you dishwashers. | |
| So just because you make a dishwasher that breaks doesn't mean that they're going to come back to you and buy the same dishwasher. | |
| In fact, if you make dishwashers that break, it's very likely they're going to go somewhere else to get a dishwasher. | |
| So that doesn't really work. | |
| It also doesn't really work in the internet because everybody researches before they buy a major appliance, at least most people do, and if all they hear about is that it breaks a lot, they simply won't buy it. | |
| So because there's competition in a free market to sell dishwashers, any company that intentionally cripples its dishwashers will simply go out of business because nobody will want to buy them anymore. | |
| So people do make the highest quality that the consumers want. | |
| Remember, it's consumers that dictate quality, not companies. | |
| Companies are simply trying to please the preferences of the consumer. | |
| So that's just very quick. | |
| You're welcome to go to freedomainradio.com to get more podcasts on economics and politics and philosophy and all that kind of good stuff. | |
| This is Stefan Molyneux saying thank you for letting me do this all. |
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