Neocon -
...Besides, strictly speaking, it is only necessary to have two competitors to have consumer sovereignty. ...
Surprisingly, Austrian Economics admits to no such necessity whatsoever.
The most urgent desires of consumers are encoded in their combined price/demand curves for the entire dynamic matrix of available products and services. For these desires to be effectively addressed by suppliers, the only requirement is for the suppliers to pursue their own self interest. Of course the price/demand curves are not something that can be looked up on the internet, but are something that entrepreneurs must estimate and then use to arrange the details of production to serve his own best interest, which consists of best serving consumers.
If every product and service were provided by a single supplier with sufficiently high production capacity and sufficiently low production costs, then each supplier would tend to price his product for maximum revenue. The overall result would be that every product would be produced and priced at levels that tended to match the combined price/demand curves of consumers in that total expenditures for every product and service would be proportional to the demand of consumers for those products and services. It is hard to imagine that this result could be improved upon from the consumers' point of view at a given point in time.
Over time, however, the current producers are subject to losing their market to new entrants who believe that they can not only undercut the pricing of the existing producer of a given product, but that they can also earn a return on the required investment that is greater than the return on any available alternate investment. To avoid this loss of market, the current producer must price below maximum revenue and either improve his productivity or suffer a reduced level of profit.
From the above, we can see that there is no requirement at all for actual production competition to exist in order to serve consumers. The producer is always in competition with all the other possible targets of finite consumer expenditures, and must simultaneously fight off potential future production competition as well.
All of the theories of monopolies and anti-trust depend on the assumption that the lower the consumer price, the better. Unfortunately, this is nonsense. In general, every consumer is also a provider of labor and other services, an owner of other factors of production, and earns additional income from investments that ultimately result from the profits of the suppliers of goods and services. Since total expenditures must equal total income over time, the simple reduction of consumer prices cannot generally benefit the society as a whole unless it is accompanied by improved multi-factor productivity and by sustained profits. In fact, society will be worse off if reduced prices come at the expense of returns to labor and other production factors and profits. As a whole the condition of an economy is dependent on more goods and services made with less factors of production and earning a profit.
Regards, Don |
