Comment by hliyan
11 hours ago
If you consider that profit is a function of price and cost, and price is a function of scarcity (i.e. demand relative to supply), then over time, logic dictates that a strategy of profit maximization will work to create scarcity as soon as the profit curve plateaus. In economic orthodoxy, the only defense against this is the hope that there is more than one supplier and that they will remain adversarial, which is not an equilibrium state if you consider that a strategy of cooperative pricing and supply curtailment can at times maximize profits more effectively than competitive oversupply. Perhaps we've been judging the benefits of unregulated free markets based solely on our observations of the first half of the profit curve. Perhaps we're now seeing many of the world's markets moving to the latter half.
This is a rather strong analysis. And especially the point on behaviour change once market growth plateaus was new to me. Thanks!
I do want to nitpick on “unregulated free markets”. Because it’s almost an oxymoron. At least if one wants to rely on the theorems that prove free markets are best.
Those theorems assume a bit more than just a lack of regulation. They assume no information imbalance between parties. No ways outside of competition to keep out market entrants, and no collusion between market parties. All of those assumptions, in order to approach them in the real world, really require some strong regulation.
Hence I would argue that the problem isn’t just the growth curve flattening, but also a US (and EU) halt to Trust busting. Massive weakening of consumer protection agencies, and a general weakening of regulatory agencies by e.g. court cases.
It’s not just that we need stronger regulation because tech companies reached a point in their lifecycle where they wish to exploit more, as you so clearly argued. On top of that, regulatory power has been pulled back.
Agreed. I would define a market as a mutual social contract that favours voluntary estimation of resource value, and exchange thereof, over violent competition for resources. Such a contact must necessarily be enforced, since voluntary compliance among humans is never 100%. So yes, some form of regulation is built into the very definition of a free market. I'm fond of saying that, as rules approach zero, competition approaches war.