Introduction to Microeconomics – 9 of 14 – Monopoly and Competition – Murray N Rothbard

INTRODUCTION TO MICROECONOMICS
Presented by Murray N. Rothbard in 1986 at New York Polytechnic University. Recorded by Hans-Hermann Hoppe.

9. Intro to Micro: Monopoly and Competition

The words monopoly and competition have been changed. Competition meant rivalry or competing, either active or potential. Businesses do not like this. Monopoly meant a grant of privilege by the government. It now means a falling demand curve. Government creates crazy regulations and the market works to get around them. Cheaper consumer products are better. It’s difficult to sustain quotas – cartel agreements; everybody cheats. Cartels break up in the free market unless government intervenes and props them up.

Part 9 of 14. Presented in 1986 at New York Polytechnic University.

This lecture as a Podcast: http://enemyofthestate.podomatic.com/

Sourced from: https://mises.org/library/introduction-microeconomics

Source: Introduction to Microeconomics – 9 of 14 – Monopoly and Competition – Murray N Rothbard – YouTube

http://www.readrothbard.com/introduction-to-microeconomics-9-of-14-monopoly-and-competition-murray-n-rothbard

TRANSCRIPT

00:00
rendering the one of the wonderful world
00:02
wild wonderful world of Monopoly
00:04
competition to sum up at the last time
00:08
the what’s happened is that the words of
00:12
an uplink competition have been changed
00:14
they originally meant a mean 17th 18th
00:18
century 19th century and also in the
00:20
minds of the ordinary person average
00:22
person public a competition means is
00:25
competing in other words rivalry
00:30
competing offering of trying to offer a
00:33
better product or a cheaper price than
00:34
the other guy next guy and the industry
00:37
so the knees competing is active
00:40
competing and as I say what the average
00:43
person thinks of them but businessmen
00:45
think I’ve only semi competition also
00:47
competition can be potential as well as
00:50
active very important point even if you
00:51
have one firm in the in an industry it
00:54
could still suffer or be subjected to
00:57
the rigors of competition because of it
00:58
if it raises prices and cuts production
01:00
another firm like my coming in and I
01:03
compete it and then it’s stuck with the
01:04
other firm forever very important point
01:06
in other words the competition can be
01:08
potential as well as active and business
01:11
firms what business firms hate like more
01:13
than anything else to bring in other
01:15
competitors they don’t like other
01:16
competitors and if they put if they cut
01:19
production and raise prices to enjoy
01:21
what’s known as monopoly price they will
01:23
then bring in whether higher profits
01:25
will attract more more or other other
01:27
capitalists will come in with new
01:29
equipment a new plants to plant more
01:32
modern equipment in this firm has so
01:34
which is so potential competition is
01:37
just as powerful as actual competition
01:39
and the minds of the businessman so you
01:40
have competing eager actual or potential
01:43
or both monopoly meant from the 17th
01:50
century line meant a grant of exclusive
01:53
privilege by the government means
01:56
exclusive to either one person or one
01:58
firm or several firms okay and so for
02:06
example the King of England gave to John
02:09
Smith the monopoly of production will
02:11
playing cards McCann
02:12
in the kingdom of England so anybody
02:15
else who produce cards was shot with the
02:18
estate of illegality in other words why
02:22
did he do this means of John Smith
02:24
benefits and the consumers suffer and
02:27
potential competitors suffer in other
02:29
words if somebody else wants to go to
02:30
the plane car business here’s price and
02:33
quantity say for playing cards decks of
02:35
cards if you say that only John Smith
02:39
can reduce it means you’re a lot you
02:41
shipping a supply curve to the left and
02:43
you’re forcing consumers to pay more for
02:46
a lower product or smaller product and
02:49
you’re keeping out will compare other
02:51
competitors people who want to produce
02:53
cards that they were allowed to do it in
02:55
other words what happens is John Smith
02:56
benefits the monopolist at the expense
02:59
of who in other words from a monopoly
03:01
who benefits you should ask yourself
03:03
this with all cases of government
03:05
interference anyway who benefit the who
03:06
pays who whom that was who’s screwing
03:10
home and your any act of government
03:12
whatsoever the beneficiary for John
03:15
Smith the monopolist of playing cards
03:18
the losers are the consumers and the
03:23
competitor the people who would have
03:24
competed every excluded competitors also
03:28
benefiting is the king and bureaucracy
03:30
because what the King does in the old
03:33
days the King would simply sell the
03:34
monopoly privilege to John Smith that’s
03:36
all I’m in the words John Smith wouldn’t
03:39
make a deal with a king Joseph gets the
03:42
monopoly privilege producing playing
03:43
cards for 20 years of something the King
03:45
gets paid for it no he pays the king
03:47
certain amount to the and also the king
03:49
of the government builds up a
03:53
bureaucracy and builds out political
03:55
allies of John Smith this of course is
03:57
happening all the time not just with
03:58
monopoly also with because got cost-plus
04:01
contracts any contract take for example
04:03
in New York City scandals right now they
04:05
famous parking violations can fill you
04:09
have a who should get thee and a
04:12
question who should get the computer I
04:13
wanted to sell computerized parking
04:16
ticket violator search machine the
04:19
search for parking violator two people
04:22
competed to companies competed for the
04:24
contouring Metro occur with lenses
04:26
throw some Metro sandwiches of the know
04:30
motorola to motoroids old and all the
04:33
distinguished computer company and
04:34
obscure laughs a called City source
04:37
compute the compu company source right
04:39
nobody ever heard of coffee sauce gets
04:41
the contract how do you source had no
04:43
money and no no computers yet why do
04:47
they get the contract because Stanley
04:49
Friedman distinguish head of the Bronx
04:51
democracy mug ronks Democratic Party who
04:55
was the lobbyist of the contract Stanley
04:59
Freeman had no money but he was made as
05:01
a return for getting the contract he
05:02
received a majority shareholder ship of
05:04
the company nobody got a million and a
05:06
half dollars and shares legal fee ok
05:13
majority shareholder the previously
05:16
non-existent company which was foreign
05:17
only for the purpose of getting the
05:19
contract ok so this sort of thing
05:21
otherwise who benefits the recipient of
05:24
them of a privilege monopoly privilege
05:25
or contract and the government official
05:27
this case lindenauer all the other guys
05:30
Friedman all these guys who are on a
05:31
take so whether it’s the king that does
05:35
it or some city official doesn’t really
05:37
doesn’t make much difference that’s the
05:38
government is the position of selling
05:40
monopoly privileges and the people were
05:43
then buying it when gambling is outlawed
05:46
for example is except for
05:48
government OPB adverts if we rent wheels
05:52
are outlawed then if the government if a
05:55
police captain allows a certain roulette
05:57
wheel establishment to operate his
05:58
district and it goes on at eight from
06:00
the company does it than the cap of the
06:04
police captain of selling monopoly
06:05
privileges the bana play privilege of
06:07
operating a roulette wheel in that
06:09
district to whatever it is to the
06:10
whatever family is operating it okay so
06:13
this is this sort of thing is going on a
06:15
long time since I lady and then known as
06:17
the government industrial complex I
06:19
guess and in the defense areas call the
06:24
military-industrial complex it really
06:25
it’s wider than that for government
06:27
industrial complex with government
06:28
business complex also known as
06:30
government business partnership okay so
06:33
this is I will see various examples
06:35
exclusive privilege the taxi industry
06:38
airline’s before deregulation in
06:40
separate
06:40
cetera monopoly the American Revolution
06:44
was fought largely against monopolies in
06:46
other words against the British
06:48
government which had given to the east
06:50
india company which had a monopoly of
06:53
all trade of a far east corporation gave
06:57
them exclusive privilege to import T&T;
06:59
nights to America and all the for the
07:02
Americans rose up against to the dump of
07:03
tea in Boston Harbor so-called Boston
07:06
Tea Party this is an attack not only on
07:09
the tax rolls on the monopoly privilege
07:11
the first states that when they remember
07:13
when the first dates were created in
07:14
American states they put into their
07:16
constitutions outlawing monopoly but
07:18
they meant of course it’s not outline
07:20
what is now meant by monopoly Xbox they
07:22
meant no grants of monopoly privilege on
07:25
the government of course is a dead
07:28
letter basically but the least it was in
07:30
the state constitution to express the
07:32
fact the American Revolution was an
07:34
anti-monopoly revolution is well as an
07:35
anti-tax okay so this was the
07:38
definitions of competition monopoly and
07:40
told 1930s basically simplify this
07:42
situation the nineteen thirty the crazy
07:44
new theory was microeconomics was coined
07:47
at about the same slightly earlier and
07:49
Keynesianism in macroeconomics so we
07:52
have well you’ve had on last 50 years
07:54
and essentially a 30 years in the
07:56
process of rolled back by which
07:57
keynesianism is getting increasingly
07:58
discredited in the macroeconomics and
08:00
it’s none too soon and also increasing
08:03
us credit on this monopoly its new
08:05
competition theory which is still
08:07
however in the textbooks in other word
08:08
has been rolled back quite a bit it’s
08:10
not taking us seriously they used to and
08:12
30s but it’s still layer the alleged
08:14
ideal competition competition so in the
08:21
1930s competition monopoly were redefine
08:24
keeping the old term because keeping the
08:27
old value connotations everybody kept on
08:31
with everybody was a favorite
08:32
competition against monopolies when the
08:33
American public economists and lectures
08:36
everybody agreed competition was good at
08:38
monopoly was bad or if they’ve been one
08:41
cool its so-called scientific terms
08:43
competitions efficient monopolies in a
08:44
fish but basically good and bad and for
08:48
obvious reasons so the same value they
08:50
redefine the word competition monopoly
08:52
then apply the same
08:53
all value judgments the emotional
08:55
baggage these terms had to the new to a
08:58
new set of a new set of definitions
09:01
competition was define as a state of not
09:05
competing but a state of a condition of
09:08
so-called perfection purity flexion
09:15
impurity monopoly was a state of
09:17
imperfection not ballistic imperfect and
09:21
impure I notice the term Zia suppose the
09:25
value free scientific terms perfect who
09:29
did who did not prefer perfectional
09:30
imperfection you very terminology get
09:33
you to be in favor of perfect who hasn’t
09:35
preferred purer and purer who doesn’t
09:38
refer competition monopolistic so this
09:39
is also called monopolistic and the
09:44
redefinition was as follows competition
09:46
meant a situation where each firm not
09:48
the industry but the firm faces a
09:50
horizontal demand curve infinitely
09:52
elastic demand curve and monopoly is a
09:59
situational monopolistic are impure and
10:01
perfect all the same jazz is defined in
10:04
a situation where each firm face is a
10:07
falling man that’s it this is a this is
10:12
really the definition we cut through all
10:14
of jargon and all the way all a junk
10:15
there’s many chapters of the text books
10:18
fortunately Miller has lesser than most
10:20
other text books when essentially what
10:23
it means is a firm is monopolistic or
10:25
monopoly or impure imperfect it’s all
10:28
the same thing if it faces the point of
10:30
man curve it’s only perfect and pure the
10:33
firm faces a horizontal maker well I’ve
10:36
already proved that me several weeks to
10:38
demonstrate all the man curves are
10:40
falling so where do we get this
10:41
horizontal man curve from get it from
10:43
this in this way if each firm in an
10:46
industry is very very tiny so the model
10:48
this is the wheat industry you know two
10:50
million weak forms in the world and have
10:52
Hiram Jones ax has 100 acres of wheat in
10:55
Iowa if Hiram Jones is a very very tiny
10:58
proportion of the cocoa wheat industry
10:59
and whatever he does on a week for not
11:02
to make any difference of the price in
11:03
other words if he increases the
11:04
production by twenty percent it’s not
11:06
gonna make a hell of a big dent
11:07
the total supply so we can therefore
11:10
assume according to the theory he’s
11:11
facing horizontal man curve other words
11:14
right he can increase the supply by
11:16
twenty percent he gets felt sell it at
11:18
the same price because it makes it very
11:20
tiny dent on a total well in other words
11:25
the model but the ideal which every
11:28
industry supposed to face is for every
11:29
firm is so tiny that it can’t affect its
11:31
price relative what us other goes out of
11:33
business or triple the production will
11:35
have no effect on price this is supposed
11:37
to be ideal situation everything else is
11:39
imperfect impure monopolistic and of
11:43
course each one of us is a monopolist by
11:45
the way not each one of us phases are
11:46
flowing to make a rule monopolist every
11:48
one of us if we’re engineers or
11:50
economists or whatever because if you go
11:52
out as an engineering labor market and
11:54
you insist on a higher wage rate very
11:57
high wager you’re gonna happen you got
11:59
to see a falling off of the man for your
12:00
service for example you get you insist
12:02
that you won’t work for IBM for less
12:03
than five hundred thousand a year you’ll
12:05
probably get this employee very fast
12:07
okay so this is another with everybody
12:10
everywhere monopolist what kind of a
12:11
crazy system is it everybody’s a
12:13
monopolist everybody except possibly
12:16
Hiram Jones on the weekend disagree
12:18
makes very little sense okay the next
12:21
point is trying to figure out why it is
12:23
that the competition is better than
12:25
so-called monopoly why is it what’s so
12:28
great about horizontal a man curve
12:29
anyway and and by the way the result of
12:33
this is old during in 1930 the 1940s the
12:36
Antitrust Division which was really
12:37
influenced by these economists I have
12:39
this view they’re trying to break up big
12:41
business into small parts because it
12:43
makes so that to duplicate this small
12:46
wheat farm situations that every other
12:48
words it’s like taking General Motors
12:49
and Ford and breaking them up at the two
12:51
million teeny little blacksmith shop
12:53
side order of your plants and of course
12:55
if you had you had a million what you’re
12:58
a small small class tonight originally
13:01
the automobile introduced to be made and
13:02
automobiles be made in blacksmith shops
13:04
and bicycle shops when the first cut
13:06
start at 1900 you take bicycles were
13:09
used to wheel and axle technology so
13:12
they start being produced to be suffered
13:13
as in cars and bicycle shops or
13:16
blacksmith shops I think Henry Ford’s
13:18
original was a blacksmith chopper
13:20
bicycle shop which
13:21
very small winding out two cars a month
13:23
or something two cars a year that’s what
13:26
these guys with the ideal of their
13:28
setting forth go back to that kind of
13:29
situation every every firm is that has
13:32
tiny teeny size compared to the whole
13:34
industry why is this supposed to be
13:35
better that’s the next question okay I
13:39
will now give you the full stick a whole
13:41
argument about why is this better why if
13:44
only demand curve is supposed to be evil
13:47
here’s the here’s of this I’m gonna set
13:52
forth for you now a series of insane
13:54
assumption none of what you’re realistic
13:57
okay all of which are flawed deeply
14:00
flawed which wind up with a conclusion
14:02
the competition is better than monopoly
14:03
competition in the sense of horizontal
14:05
demand curve is better than monopoly in
14:08
the sense of a fooling a man curb can
14:13
you take first of all in we getting out
14:17
of the concept for the hoppy authorities
14:18
mentioned to you before final
14:20
equilibrium long run long run
14:24
equilibrium a long-run equilibrium is
14:27
different from what I’ve been talking
14:29
about supply and demand every day to day
14:31
long run equilibrium is this if you’re
14:34
going along with lots of stuff going on
14:37
and they and business lots of changes
14:38
taking place and values and resources
14:40
and technology if you if the angel
14:42
Gabriel came to the earth and froze
14:44
everything like a freeze frame operation
14:46
froze all value scales and no value
14:48
scales are changing for froze all
14:50
resources supply labor land etcetera
14:54
frugal technology so no new technology
14:56
freeze everything then if you did that
14:59
in a few years you’d wind up with every
15:02
corporation making the same long-run
15:04
interest rate there would be no pure
15:06
profits no pure losses because
15:10
everything would be the same old kind of
15:11
everybody would know but the world will
15:14
remain the same forever like an ant heap
15:16
so this would mean if data were frozen
15:19
you’d wind up after a few years with
15:21
every firm making six percent interest
15:23
return nope no extra profits beyond the
15:26
regular time preference or interest rate
15:28
and no losses of course if you could
15:29
foresee everything you not go make any
15:31
more sins if you can predict everything
15:32
in the future because everything is
15:33
always been well
15:34
always be the same as it has been in
15:35
last 20 years he’d wind up with a no
15:39
profits at a loss of them where you wind
15:41
up with an interest return only for
15:43
every firm so the a firm which is now
15:45
making heavy profits you know firms will
15:48
capital poor to that industry computers
15:50
let’s say you wind up of usual 6%
15:53
president industries are you making
15:54
losses friend to leave it you wind up
15:56
after this kind of shuffling back and
15:57
forth after a few years with everybody
15:59
making six percent no no more no less
16:01
four percent whatever the interest rate
16:03
is so you then geometrically you’d have
16:07
a tangency situation in other words
16:09
geometrically and have this is you wind
16:15
up with something like total cost
16:17
tangent 22 total revenue at the whatever
16:22
the production point is and the average
16:26
cost diagram okay you have your u-shaped
16:29
average cost curve and you have a you
16:34
have AB average revenue curve it will
16:38
have to be tangent and final equilibrium
16:40
now remember the final equilibrium does
16:42
not exist ever can’t exist ever has like
16:44
this is ever will exist remember this
16:45
because life is not you don’t freeze the
16:48
data that they are always changing
16:50
values are changing value scales are
16:52
changing fashions are changing
16:53
preferences change technology changes
16:56
investment changes in labor chain lots
16:58
of stuff is changing all the time you
16:59
never get too long run equilibrium the
17:01
important thing about following Caleb
17:02
Beames try to tell you to analyze
17:04
profits and interest to show you the
17:06
profits and losses or a manner of
17:08
forecasting an interest as a matter of
17:10
time I’m preference it’s really an
17:12
analysis of where the economy is going
17:15
it should not be taken seriously as an
17:16
existing situation cuz never has exist
17:18
never will well what happens in
17:20
microeconomics unfortunately since
17:21
nineteen birdies one morning a living
17:24
has been taking exam taken seriously as
17:26
a not only existing but something which
17:28
is a good thing and should exist if it
17:31
did exist it shouldn’t we measure it we
17:33
all be a miserable shavings a weak state
17:35
of obsesses not nothing ever improved I
17:37
can ever change be pretty miserable like
17:40
an ant heap or a beehive be pretty
17:42
miserable existence anyway this is
17:44
supposed to be the ideal situation I
17:48
given us u-shape average cost curve
17:51
we’ve already seen it’s not really you
17:53
shape forgot about that right given that
17:55
and fooling demand curve for the firm
17:59
the main care for the furthest foaling
18:01
it can only be tangent in this area this
18:04
is just went once you once you assume a
18:06
u-shaped average cost curve and a linear
18:09
demand curve and has to be can only be
18:12
tangent say here in other words is the
18:18
tangency of the this firm for this firm
18:22
in a if its coat monopolistic on caught
18:25
another words in the faces of following
18:26
a man curve the other hand if it’s the
18:29
man curve is horizontal it’s in a
18:30
situation it’s a teeny fraction of the
18:33
entire industry then it can only hit the
18:35
only be tangent in this this point here
18:38
given the same average cost curve
18:39
remember that given the average cost
18:41
curve is being the same you then have
18:44
this kind of situation in other words if
18:47
the demand curve for the firm is
18:48
horizontal your tangent here therefore
18:55
conclusion okay just as we conclude with
18:58
a monopoly privilege that the government
19:01
excludes firms you have a smaller
19:04
product at a higher price there by
19:06
screwing the consumers so these people
19:08
conclude about the free market or a
19:11
market in general the firm facing of
19:13
falling demand curve will the output
19:16
will be smaller and price will be higher
19:18
than firm with it with a horizontal
19:21
manker just from the thigh ran here so
19:25
conclusion that’s it that’s the whole
19:28
stick this is that the entire case for
19:31
the horizontal man comes again for
19:33
purity and perfection is against
19:34
impurity imperfection entire cases the
19:37
given same average cost curve given a
19:40
tangency in the final long run
19:42
equilibrium and given the shape of the U
19:44
shape of the average cost curve given
19:45
the rest of the linear shape you wind up
19:48
with a output smaller and under
19:55
supplement all the way under
19:56
monopolistic and
20:01
and I’m price higher inclusion is there
20:05
for the consumers are being screwed by a
20:07
my monopoly and therefore the Antitrust
20:09
Division to come in and break every firm
20:10
up in the teeny parts so as to get to
20:13
the bottom of the average cost curve now
20:16
the many say there are many problems
20:18
with it this is bizarre it’s a putting a
20:22
kindly first place this house Wow I mean
20:25
just one one question how big is this
20:26
anyway if you’re going to the problem
20:28
the trouble breaking out firm is this
20:31
like one half of one percent or is a
20:32
really important nobody knows remember
20:34
all lowers and economics are qualitative
20:37
apart from that you might be going to
20:40
all with headache a very small fraction
20:42
of repairing math like some economists
20:44
are trying to estimate what this
20:46
percentage is something like two percent
20:48
or something even the best two percent
20:50
difference but anyway that’s best a Lisa
20:52
the problems here uh one thing is who
20:57
sue says the u-shaped court’s card we’ve
20:59
sorta scenes not really you shake its
21:02
most cases cost curves are down like
21:05
this in the plant and a flat plateau
21:08
none of this works this whole thing
21:10
about the window because first of all
21:13
the the the intersection point is now in
21:18
the whole business not just one point we
21:21
have a whole range at which marginal
21:23
costs an average costs are equal and as
21:25
nothing a semi supposing of you have on
21:27
this would be platinum a curve like this
21:30
of the falling demand curve could easily
21:33
be like that could easily hit CS at this
21:35
point no down like that don’t forget
21:38
there’s nothing that says that it has to
21:40
be linear it could be a little gap in
21:42
the London and a line here even so you
21:45
can easily twisted around and have a
21:47
thing coincide at the same point as a
21:48
falling America the falling and the
21:52
linear and horizontal okay if those you
21:56
is you’re in math I can even have it
21:58
here you can twist it around a little
21:59
bit like that you hit us at the bottom
22:02
point remember the linear part is purely
22:04
use trulia simplification purposes
22:06
that’s nobody knows that it’s a straight
22:07
line all we know is that it’s falling so
22:10
if it’s falling and easily cut around
22:11
like that simply nip in there
22:15
and intersect of the same point okay ah
22:18
as I say with this thing here with a
22:21
bonnet with a flat bottom the
22:23
intersection point is that it’s pretty
22:24
pretty expensive because you can because
22:27
even more or more room for the nip in
22:29
and around and get in there so this
22:33
really only works you’re if you’re
22:35
committed to a straight line at all
22:36
times there’s no reason for that if you
22:38
committed to a you one single talk point
22:40
there’s no reason for that the fact
22:42
factory the reason for the opposite ah
22:45
second of all it only works in
22:47
equilibrium in other words the rest of
22:49
the time in the real world when there’s
22:50
no long-run equilibrium none of this
22:52
applies or though there’s no way you can
22:54
say that output a small or price higher
22:56
and so-called monopolistic situation and
23:00
you have something like this you have
23:01
this so you have a point line value even
23:04
something like that point like that
23:05
there’s no way to show the price is
23:08
higher them outputs more you can only
23:10
show that a long run long run
23:11
equilibrium since there never is Lauren
23:13
a clever never exists this whole thing
23:15
is pointless because this situation is
23:17
tangency never exists in real life never
23:20
can’t exist ever will exist so this
23:25
whole this whole situations whole thesis
23:28
applies only at best to a tangent sees
23:31
we Jimmy up the things that you this has
23:34
to be linear and this has to be one
23:36
point neither which is true and secondly
23:39
it only exists in long-term equilibriums
23:40
doesn’t it shows never never really
23:42
exists anywhere in the real world truly
23:44
artificial construction we be a bad
23:47
shape of it exists there’s nothing great
23:49
about long-run equilibrium also and
23:54
finally and probably the most important
23:56
point here is the who says that the cost
23:58
curve remains the same situation who
24:00
said where is it written fact was just
24:02
the opposite if we took the General
24:05
Motors or Ford and broke it up in the
24:07
woods hundred thousand or whatever teeny
24:09
plants each for the size of a blacksmith
24:10
shop you might get you might get you
24:14
might get a hit at the bottom it’s true
24:17
then the other hand you’d be way up star
24:18
going 10th floor their knowledge with
24:19
some type of all the Coast Guard would
24:20
be extremely high because each each
24:23
plant will be very inefficient you
24:25
wouldn’t capture the advantages watch
24:26
scale production
24:29
you might get you know five million
24:31
dollars per car so the only few
24:33
millionaires can afford to Rye which is
24:35
which is by the way what happened in the
24:36
early days would be automobile was a toy
24:39
for the rich only when Henry Ford and
24:42
they theory mass production came in but
24:44
he say now we can have we can have the
24:45
average person live just have a mass
24:47
production interchangeable parts but
24:49
because before that the cars are
24:50
beautiful except they’re very expensive
24:51
only millionaires environment Diamond
24:53
Jim Brady whatever the rider mana so so
24:58
in other words we could be at the bottom
24:59
of the consumers that haven’t but have a
25:01
thrill of knowing of that the each from
25:03
be at the bottom of the cost curve you
25:04
tap in women a the so-called monopoly
25:06
here and the other hand of course should
25:07
be paying farming in all as a car
25:09
because each cost or would be infinitely
25:10
higher than the cost curve on a large
25:12
scale production so the rub is to say is
25:16
the cost curve of equal customers are
25:18
never equal and the reason for
25:20
large-scale production precisely because
25:21
of cost curve is lower cuz when you get
25:23
to the large scale production unit
25:25
athlete in the visibility’s of
25:26
large-scale production gets an oil much
25:28
lower cost so the fact you be up here
25:31
some weird happily happily the bangla
25:33
costco are not going to give us much
25:34
consolation repay the five million bucks
25:36
per car so so all this I think is
25:42
demonstrates the fallow the egregious
25:45
fallacies of this whole concept whole
25:47
idea that kind of somehow but somehow
25:49
perfect competition is better than or
25:51
purify our competition is better than
25:53
so-called monopolistic there’s something
25:54
evil about falling demand curve it’s not
25:56
true only makers are great also exist
25:59
number you where we always have them and
26:01
we’re able to tap large-scale production
26:03
here it says you’re much better off
26:04
thing would be even at the bottom of a
26:07
closed curve way up in the tenth floor
26:08
there was if it’s five million bucks per
26:10
car so the question is how does this
26:15
kind of this whole thing arise and it’s
26:16
interesting it was partly generally the
26:19
anti business climate of the 1930s where
26:21
this kind of doctrine became popular so
26:26
what’s been happening over the years
26:28
that the economics profession has been
26:29
slowly rolling backward from this
26:31
commitment to this crazy perfect
26:33
competition doctrine but it’s still
26:35
layer as an ideal solicitor the ideal
26:37
some houses down do it’s a Jewish and
26:42
I’ll take quite a while before that gets
26:43
blasted loose and freight the that we
26:49
have it that’s that’s the full argument
26:50
for the perfection of the desirability
26:54
perfect competition alleged
26:56
undesirability of falling demand curves
26:57
and say there’s pretty feeble as those
27:01
of courses of you very kind to it so
27:06
it’s almost what’s happening now the
27:07
economist essentially stopped endorsing
27:09
the idea of breaking up all businesses
27:11
in the tiny little blacksmith shop sighs
27:13
but they’re still it’s still somehow
27:15
it’ll actually committed to the alleged
27:17
ideal largely because you see can use
27:19
tangency in equations and differential
27:21
calculus here because if you’re if
27:23
you’re you start talking about something
27:25
like this the math has to drop out but
27:29
this but if you everything is tangent
27:31
and finally long-run equilibrium and its
27:33
curves are smoothly are key and so funny
27:35
can also the beautiful equations of
27:37
tendencies and graphs are great as soon
27:40
as you drop that and bring in the real
27:41
world the graphs and the tent and
27:43
equations don’t have to have to be
27:44
either modified I have to be eliminated
27:45
it sure but sure reduces the alleged
27:49
science your ladies hard science of
27:51
economics but first the hard times the
27:54
only alleged obviously hoping is a
27:55
tissue of fabrication of alleged alleged
27:59
science so anyway that’s the that’s the
28:04
setup and there are as part of the part
28:09
of the argument you see is that the if
28:11
in order to have so-called competition
28:13
you have there every firm must be very
28:15
tiny goods are given the good is quote
28:18
given unquote I mean you can’t have any
28:20
improvement because then any improved
28:21
product becomes a quote monopolistic on
28:23
quote because there’s always only the
28:25
only one firm that comes out with a new
28:26
product or a new invention so that
28:30
according to this doctrine save pull
28:33
roy’s the first firm that comes out with
28:35
a Polaroid camera pulled our process it
28:37
makes it monopolistic right away because
28:39
that you don’t have a million firms each
28:41
one very small so but monopoly is good
28:44
in that sense because without that you
28:45
wouldn’t have any improvement at all you
28:47
have to have every firm of you like a
28:48
small weak form no firm be able to get
28:51
out there and invent a new product or a
28:53
new process or whatever
28:55
with me any computer in to win me any
28:57
Xerox wouldn t pull royal me not
28:59
calculators everybody be stuck in the
29:01
only perform kind of thing with no one
29:03
firm can do anything I want her going to
29:05
be even active as a competing force much
29:07
less is a done anything else so anyway
29:11
when I’m trying saying here is that the
29:13
whole alleged ideals as well I’ve hocus
29:15
pocus mumbo jumbo based on its tangent
29:18
the whole series of crazy assumption
29:20
tangency the a given cost curve the
29:24
tangency which only exists in the long
29:25
run equilibrium a peculiar shape a
29:27
linear shapes you shake point on the
29:33
door here the so in real life again what
29:40
the real problem monopoly is not fooling
29:42
the man covers nothing wrong following a
29:44
man curve not the inefficient or
29:46
unethical or anything of the sort a
29:48
problem in op is once again the same
29:50
problems we had in 17 18th century in
29:51
19th century namely government a ransom
29:56
exclusive privilege either for one firm
29:57
for several firms that’s really the
30:00
situation where monopoly comes in cost
30:02
plus or exclusive contracts or keeping
30:05
out different parts of the industry and
30:07
thereby shifting a supply curve to the
30:10
left raising prices keeping our
30:14
competitors that sort of thing which
30:16
always has existed it always has been
30:17
the problem monopoly still is it’s like
30:20
this the redefinition monopoly being a
30:22
point of man currently is still
30:24
exclusive privilege by the government
30:26
okay let’s see how this works the for
30:32
example before deregulation of airlines
30:34
that means from 1930’s and for a couple
30:36
years ago we have a Civil Aeronautics
30:37
Board beloved institution just put in a
30:45
large Airlines United Pan Am I’m 1930s
30:51
serve as a cartel izing device other
30:54
words of the monopolizing device the CA
30:59
B was put in lobby for by the big
31:01
airlines with staff by essentially
31:02
people from the big airlines the idea
31:04
was to keep excluding airline
31:09
sigh monopoly routes and also to
31:11
regulate the rate to the rate would keep
31:13
going up for example in New York the
31:17
Boston have one thing only Eastern
31:18
Airlines had to do that route in those
31:20
days nobody if anybody else kind of fly
31:22
from New Yorker boss and they were shot
31:24
no as they were considered illegal they
31:26
were excluded by the c a b c a b gave
31:29
certificates of convenience and
31:31
necessity I thing was cool to every any
31:33
airline on your route the ca be said no
31:36
you can’t fly that route we couldn’t do
31:37
it there’s no free market other words no
31:39
free enterprise the airline industry I
31:42
think at one point Pan Am had the entire
31:44
Pacific locked up old ruthless Pacific
31:46
had to be paying on nobody else to
31:48
compete I think it was only African that
31:50
which ethics panel was a Republican
31:51
airline and TWA was democratic I think
31:55
our bikes at versa yeah I thing over
31:57
there Democrats came in they allowed TWA
32:00
to fly in that room so and there still
32:04
is by the way a very powerful
32:05
international airline cartel a yachtie
32:07
international airline thomas’s cramp
32:10
excellent sociation something like that
32:12
have a lock off of all european flights
32:14
and those of you who ever flown to
32:15
europe will see the to your horror look
32:17
it’s more expensive fly from London to
32:20
Frankfurt than this mean eyes that New
32:22
York and London because the the intra
32:24
enter european flights in europe are
32:27
locked up by very very powerful
32:28
intergovernmental cartel which used to
32:33
be which the United States is now
32:34
probably has finally busted has been
32:36
busted inside the United States from
32:38
American Airlines the so in other words
32:43
you have a rationing situation you would
32:46
sign routes your ex clue everybody
32:48
except one or two airlines meets from
32:50
each group you lock up particularly the
32:52
major roads most profitable routes and
32:54
and jack up the price now originally
32:57
saying the 19 for I think money is later
33:00
the 1950s there’s no such thing its
33:02
first class of tourists all classes were
33:04
first class everything was very very
33:05
extremely expensive but your hands then
33:08
was heroic little airlines though their
33:11
names like transamerica and cut metal
33:15
trans con another one I’m continental
33:20
they were competing and there are small
33:22
airlines another
33:23
you have to realize who you were
33:25
emphasizing this course to a big ear a
33:27
big company doesn’t necessarily alka p
33:29
the smaller the facts of all competitors
33:31
are more efficient and so in this case
33:34
the smaller lines came in i started out
33:36
competing the big ones by offering
33:38
cheaper service and a no-frills server
33:40
this is days before people who express
33:43
and immediately acab and the half of the
33:46
airline comes in and puts them prohibits
33:48
that from scheduling their flights in
33:50
other words okay from now on you guys
33:52
there’s no safety problem otherwise
33:54
safety is the FAA Federal Aviation
33:57
Administration CIB was purely in charge
34:01
of economic monopoly part of the airline
34:03
business and these guys wouldn’t have
34:06
very good safety record much better than
34:07
the big airlines / from wild flown but
34:12
they see this it’s bc they said well you
34:15
guys are unfair competitors we won’t
34:17
allow you to schedule your flights in
34:18
other words you couldn’t have any
34:20
timetable they had to sit there and lie
34:21
on the air from them they on a running
34:24
runway until they fill up so they can
34:26
only say well we’re flying on Tuesday I
34:28
couldn’t say we’re client tuesday 11 i
34:30
am they’re prohibited by the law what
34:32
about see ad from doing that even so
34:34
they would call the non scheduled non
34:36
scheduled airlines even as on sched they
34:39
were able out-compete they were able to
34:40
fly people from New York LA I’d say for
34:43
half the price of the united or american
34:45
or TWA they break it yeah yeah yeah i
34:55
technically how much does consumers are
34:56
willing to go for that was a cut down on
34:58
the consumer than they obviously for you
35:00
I don’t know he can’t oh I don’t know
35:02
when you’re gonna leave it at during the
35:03
day right but even so even with a
35:05
non-skid repression by the CAA they were
35:08
still out competing doing very well they
35:11
were cutting a price literally in half
35:12
fare now it’s true there were no frill
35:14
some of these outfits used to weigh you
35:18
along with the luggage the maximum
35:21
weight of you plus the luggage those of
35:23
us who are on a heavyset side we fellows
35:25
kind of kind of discrimination scorn or
35:27
while you’re paying is a trade-off other
35:29
words are interrogating for the ignorant
35:31
ignominy of getting weighed you also
35:34
know cost you a lot less
35:37
um where my wife flew from Los Angeles
35:40
New York on a non CI things
35:41
TransAmerican was very cheap of it was
35:44
not it was kind of scary in a sense that
35:46
they they said well fan out at one point
35:48
they announced the please everybody go
35:50
to the back of the of the plane that’s
35:52
other thing it didn’t give you a feeling
35:54
of great confidence also at one point
35:56
there’s a leak in the pose raining out
35:58
sometimes a leak in the ceiling play
36:01
Stuart is very great aplomb went up
36:03
there took a band-aid and put it on that
36:04
week it was kind of a raffish she didn’t
36:07
raffish airline doesn’t give you great
36:09
security the other hand they had a very
36:10
good safety record and no crashes
36:12
remember and fun and a force they were
36:15
the ones with the competition of
36:16
transamerica transcontinental of forced
36:18
the big five finally create a coach
36:22
sectional over the first time selection
36:23
I cut them cut their their fares in the
36:25
rear of the plane in half that was
36:27
making 50 then the did it heroic battle
36:31
competition these Alera lies its forced
36:33
America and United Airlines and TWA and
36:36
so forth to to finally create a second
36:39
class fare system finally what the CA B
36:43
is they simply put them out of business
36:44
they force them out of business so from
36:45
now on you can’t fly anymore that was
36:47
the end of that in the poor transamerica
36:49
found that a little rest of it there was
36:53
a another plane I went to Europe I
36:55
forgot the airline friends of mine used
36:56
to go on there were students they were
36:58
good 5 to Iceland and look some Berg and
37:02
it would Lana in the and I say the last
37:04
I’m wearing a field in New Hampshire and
37:06
you make your way to New York by train
37:09
or bus or something anyway wasn’t very
37:11
cheap that’s cheaper than official
37:14
affairs in that period so what happens
37:17
is in other words these planes had
37:18
minimum their their rates were kept up
37:21
they were set by the sea a beating a
37:23
very high rate also there’s also some
37:28
ways to compete now if you can’t compete
37:29
on the basis of pricey compete on the
37:31
basis of quality of service of pros and
37:33
so you start giving you a more better
37:38
better food or swankier portions
37:41
prettier stewardess is it was only he
37:44
became the methods of competition rather
37:45
than price one point he oughta cracked
37:49
down and said
37:50
from now on no more meals no more hot
37:53
meals on air Lanka conga transatlantic
37:56
flights you can only have sandwiches no
37:59
more hot meal the more you know real
38:00
dinners and so what the individual
38:02
airline sought to do in order to break
38:04
the cartel it started having a okay
38:07
we’re only having sandwiches and open
38:09
the face sandwich they take the whole
38:10
beef bourguignon put them on a pipe
38:11
piece of bread and call it a sandwich so
38:14
this way getting around a crazy cartel
38:16
regulation so only he gon make history
38:21
by the history of government and the
38:23
economy is essentially a history of the
38:25
government versus a market government
38:26
puts on crazy regulations the market
38:28
trying to get around it we’ve seen with
38:30
price control and so forth same thing is
38:31
working here with mop like monopoly
38:33
privileges you put on a regulation you
38:36
have to keep the price up then the
38:38
Camaro I stopped competing in things
38:40
like like better meals then the cartel
38:43
attacks like crack down on the meals I
38:45
know you can only serve sandwiches and
38:46
they serve open-faced sandwiches there’s
38:48
a whole meal on top of a piece of bread
38:49
kaulitz and ‘which always the but
38:55
finally it began a handful in the
38:57
airlines is it became you’re a monopoly
38:59
you get a very high profit okay but
39:01
eventually longer run the prophet gets
39:04
gets competed away and basically the
39:07
higher costs in other words but then
39:10
happens is where you have a high demand
39:12
curve high profits then increase you
39:14
demand curve for workers for raw
39:16
material for whatever and the prices are
39:19
going up and what you have what happened
39:21
is you have a very high salaries for
39:23
example for pilots and stewardess is
39:24
much for much higher for these big
39:26
airlines of anybody else coming from the
39:28
unscheduled types very high costs plush
39:32
offices I’m great enormous amount of
39:34
inefficiency in well not after about 40
39:37
years of this but the airlines losing
39:39
money anyway you know there were
39:40
monopolistic you know they were
39:41
restricted so 4 and so on it’s go losing
39:43
money this by the way with what happens
39:45
with a train with trains and railroads
39:47
in general railroads are over doke they
39:51
were then regulated if their fares were
39:53
kept up rates were kept up by the
39:56
interstate commerce commission finally
39:58
after many decades of that they started
39:59
losing money even though they were
40:01
getting privileged by the ICC is you
40:02
losing money as monopoly
40:04
because not what kind of a get an
40:05
inefficient and see you wound up with
40:08
these airlines losing money anyway and
40:10
finally when the move for deregulation
40:13
came on The Late Late years of the
40:15
Carter Administration 1978 their
40:18
Airlines I’m almost ready for its out
40:19
however may well have to have to try
40:21
something new and stay more or less went
40:23
along with it he know reluctantly
40:24
because monopoly just wasn’t working
40:27
finally they were just losing money
40:28
anyway they began to realize maybe we do
40:30
better on her deregulation you know they
40:31
weren’t happy about it was still ready
40:33
there there love her for monopoly had
40:35
well as with it away after 40 years of
40:38
this as a result of deregulation have
40:41
tremendous changes in the airline
40:42
industry some lines are going went
40:44
bankrupt other lines are popped up of
40:46
new a effective competitor like people
40:48
who express we again with people who
40:50
expresses much less is much cheaper in
40:51
the other hand you have to realize that
40:52
you know not quite sure when they’re
40:54
going to take off because they might sit
40:56
there loading up etc so why and you
40:58
realize that use your you pay for the
41:00
difference so biased outfit that venom a
41:04
lot of reshuffling in the airline
41:05
industry plus the invention of a
41:08
hub-and-spoke thing which came battling
41:09
by market began to realize is more
41:12
efficient the hub hub cities like Denver
41:15
Alex ice instead of having a lot of
41:16
non-stop flight safe in New York Los
41:18
Angeles you stop at Denver it’s not like
41:20
Houston have them a lot of Airlines
41:23
coming in from from other cities coming
41:26
in and Denver than going out again
41:27
nobody could have predicted in advance
41:28
this is what would happen is only can
41:30
your browser’s although the market
41:31
market forces or turn outta this is the
41:34
most efficient way of doing it so at any
41:36
rate this is so the long run even
41:40
monopolist begin to lose out the
41:41
situation but it often takes you don’t
41:44
half a century to do that okay that’s
41:46
enough for today keep you up on the news
41:51
with the Wyatt keep got my new since the
41:56
court term of started the you might have
41:59
noticed if you get time magazine the
42:01
current issue of time magazine is a
42:02
front cover it says I think it said yes
42:05
as oil price cheap oil good news and
42:09
underneath has a headline cheap oil bad
42:12
news and then has a typical time type
42:15
discussion which is very middle of the
42:16
road
42:17
having quotes from both sides saying the
42:20
g4 good ship you’ll be boiled bad the
42:22
latest political slap as Vice President
42:24
Bush who said is indeed a Texas oil man
42:29
who came out in favor of raising the
42:32
price of oil quote stabilizing and
42:34
thereby violating the current principal
42:37
is a regular ministration of a big flap
42:39
on that so here we have a situation
42:41
price of oil has magnificently fallen
42:43
from 30 bucks a barrel 30 final a barrel
42:47
years several years ago to about ten
42:48
dollars barrel now something like that
42:50
in real terms since the price of oil
42:54
jump prices in general of cripple in
42:57
life 20 years this means it’s the
42:59
equivalent of a three dollars of bowel
43:02
1967 or so so it’s more or less what
43:06
what in real terms are corrected for
43:08
inflation if more or less what it was
43:09
before the OPEC arab oil explosion in
43:13
the early seventies a little bit higher
43:15
and more or less the same so what
43:18
happens with any price change is
43:20
hysteria hits know the word well the
43:22
price is going up or down most of the
43:24
establishment most of the media is
43:26
attacking it terrible thing will cause
43:28
inflation or depression or where the
43:29
heck of it I can’t it can’t be they
43:32
can’t both be a right it kids a bit a
43:34
probable thing to raise the price of oil
43:35
for three bucks to 35 and also terrible
43:39
go down a 10-item az’s it’s you can’t
43:42
have it both ways unless you take a
43:45
position any change whatsoever is bad
43:47
which makes me an idiotic position of
43:48
cake ah so what’s the real story here
43:52
it’s true that the Texans don’t like the
43:53
Texans love the fact the price of oil is
43:55
35 you’re a Texas oil man you’ll love
43:58
the $35 an ounce of barracks you can be
44:01
purified
44:03
35 barrel crude oil price you don’t like
44:08
it going down to 10 on the other hand
44:09
who cares about Texas woman why should
44:11
they simply set the standard for how we
44:14
decide something how we judge it the
44:17
standard of all these things should be
44:18
judged the way to look at it you don’t
44:19
go take a gallup polls and ask the texas
44:22
congressman a national in Congress what
44:24
you do is you figure out where the
44:25
consumer sand on this thing where’s the
44:28
whole point of production the whole
44:30
point of an economy in general is for
44:32
consumption the whole point producing or
44:34
else is eventually gets to the consumer
44:35
in the form of kerosene gasoline or
44:37
whatever eating oil whatever you use for
44:40
and so the whole point of production is
44:43
that over time for the days of the cave
44:45
mantle the present more and more
44:47
consumer want to be satisfied the
44:49
standard of living keeps going up
44:50
everything gets cheaper and more
44:52
abundant those exist is available
44:55
consumer keep improving and increasing
44:56
and and and and the new products come on
44:59
the market an old product get cheaper
45:01
that’s the whole point of production
45:04
that’s what increased anna living means
45:06
the consumer can get more more goods and
45:09
services so there so we know then what
45:12
the how does how to judge any change up
45:15
or down of the dollar and prices
45:17
whatever namely cheaper is better period
45:19
of course if you have maximum price
45:21
control you screw everything up so I’m
45:23
talking about cheaper on the free market
45:24
cheaper is an expression of increased
45:26
supply okay breaking cartels or cartels
45:30
breaking up we going the cartels today
45:33
cartels this deliberately restrict
45:36
production and raised prices breaking up
45:39
over cartels what’s been happening last
45:40
couple years with OPEC means the
45:42
consumers are enjoying the benefit of
45:43
cheaper oil and a lower prices cheaper
45:46
is better okay and that’s that that
45:49
solve the problem it’s better to have
45:52
computers on your lap for whatever it is
45:55
30 final is robert n better than to have
45:57
a plug into a mainframe or two million
46:00
dollars or whatever the only states
46:02
better cheaper is better if you hold in
46:04
a hole in your heart which of course
46:06
what the average person’s reaction is
46:07
anyway but you find in economics is
46:09
basically the average person’s immediate
46:10
reaction is usually correct
46:12
unfortunately the average person’s
46:14
reaction is often overloaded with phony
46:15
economics
46:16
and bad advice they get from the media
46:19
so so cheaper is better cheaper gasoline
46:23
is better chief of fuel oils better all
46:25
the rest of it they are noticed some of
46:27
the phony arguments you get well the
46:29
trouble with cheaper oil is if people
46:31
use much of a lot of it and we’ll get
46:32
more expensive well and then we worry
46:34
about it after that you know mean you
46:35
take each thing a day at a time you
46:38
don’t say you have to jack up the price
46:40
of oil now riaz reestablished the cartel
46:42
which essentially about Bush wants to do
46:44
and raise the price of oil so that to
46:46
avoid an increase the price of oil 10
46:48
years from now I’m hope the whole the
46:50
whole concept is nuts I mean looking at
46:51
the logical argument the whole thing’s
46:54
is full of prunes and the only time the
46:57
only reason people advance the argument
46:59
because they believe it nobody can
47:00
believe nobody no rational person who
47:02
believe it’s what we should do is to
47:03
force the price of oil up now because
47:05
eventually at ten years of my call off
47:07
by itself right that that’s an argument
47:10
so ridiculous mill they can really hold
47:12
it these arguments are advanced for for
47:14
sinister economic interest by Senator
47:15
means again I mean against the public
47:17
interest for those who want to
47:19
re-establish the cartel jack up the
47:20
price of oil and lower a cut the supply
47:23
which Texas oil people want to do of
47:25
course and so it’s a very says that it’s
47:29
not a muddle to join you don’t have to
47:30
be a middle of a rotor on this thing you
47:31
know it’s like take Gallup polls from
47:33
everybody it should be crystal clear
47:35
that cheaper is better and finally the
47:39
world people are finally getting there
47:40
come up us the OPEC pipes and the
47:44
classic method by which cartels always
47:46
got comeuppance okay let’s get into that
47:48
but cartel of the situation where we’re
47:53
suppliers of any sort we’re going to go
47:55
through various examples of this
47:57
supplies of medical services suppliers
47:59
of a punk taxi service suppliers of oil
48:02
does really make any difference they try
48:04
to band together there’s a supply and
48:07
here’s the man you restrict the supply
48:09
and raise the price taking advantage of
48:11
an alleged inelastic demand curve let’s
48:14
assume the demand curve for the industry
48:15
is inelastic we know of course the man
48:17
curve every firm of the elastic it’s
48:20
fairly flat so they can’t in an each
48:23
individual if Wonder Bread say you want
48:26
to have a red card tell if one regret
48:28
trying to write raise the price the two
48:29
bucks all of nobodies
48:30
I accept a couple of Wonder Bread very
48:32
wealthy Wonder Bread fanatics everybody
48:34
else will shift the pepperidge farm or
48:36
silver tasty bread or whatever but if
48:38
all the bread firms get together and try
48:39
to raise the price they try to go up
48:42
there in the street a man curve and
48:43
thereby increase they alleged let’s
48:46
assume we have an inelastic demand curve
48:47
doesn’t have to be an elastic but in
48:49
those industries the demand curve is
48:50
inelastic firms are tempted to try to
48:53
restrict production raise the price
48:55
there by benefiting each firm and
48:56
screwing the consumer now most people
49:00
think of as easy to have a cartel most
49:02
people think I think the average
49:04
person’s in this case the average
49:05
person’s are wrong instincts but the
49:07
let’s say General Electric and
49:08
Westinghouse which is essentially a
49:10
two-person of two firm electrical
49:12
industry major firms electronics and the
49:15
vice president of each guest together
49:17
over the union league club or something
49:18
and having a cocktails and they saying
49:20
well and once it’s the other hey Jim
49:22
when we increase our price by twenty
49:23
percent and both do it and we’ll have an
49:26
inelastic demand curve will you Kevin
49:28
increase profits and jim says that’s a
49:29
great idea Joe at the end of it’s not
49:31
the end of it it’s very difficult to
49:33
establish a car i’ll even without an
49:34
even have forgetting of antitrust laws
49:37
the reason is this it’s easy for both
49:40
say westinghouse and general likely to
49:42
say hey let’s raise the price that’s
49:43
great but in order to want to have a
49:46
viable rise in price in order to be able
49:49
to do it they have to cut production in
49:51
other words whatever it is ten percent
49:53
the theme ever is each one has to agree
49:55
to cut production in order to have this
49:57
joint rise in price every businessman
50:00
hates the cut production i hate i hate
50:02
in their gut the cut production what
50:03
they want to do is increase increase
50:04
production ever even the fan wants to
50:06
expand his operation doesn’t want to cut
50:07
them and so this this is a goal in the
50:10
heart of every businessman so that the
50:11
form a cartel is a very difficult
50:13
process causing a great deal of
50:15
negotiations even even when it’s legal
50:18
you want to go antitrust problem months
50:20
of negotiation while we have to cut rid
50:22
of how much do we cut production and
50:23
each one supplier let’s say that to have
50:25
a base year i would say 1985 is the base
50:29
year let’s say both parties are two or
50:31
three firms the industry they each agree
50:33
to cut production my 50 breast center
50:35
well they can do that but you see over
50:38
time and the time doesn’t have to be
50:40
very long in a year or so each one will
50:41
think geez why mice restrict the night
50:43
Katy fun I think if I
50:44
getting to be obsolete I’ve got new
50:46
machines I’ve got better equipment I’ve
50:47
got new products I should be bound by
50:49
1985 when I could I know darn well I
50:52
expand production I can out-compete you
50:53
guys now I can get a bigger share of a
50:55
market each firm has to believe it
50:57
because if you’re in business you have
50:58
to be an optimist of you know different
50:59
or you you’re spending a lot of money
51:01
investing a lot of money and pessimist
51:04
don’t book don’t last long and business
51:06
so most visits are optimistic and most
51:08
of us are chaffing in a bit I wish I’d
51:10
be restricted by 1985 which is now three
51:12
years ago and so the cartel quotas tend
51:15
to be busted in other words each
51:16
business van they kind of me negotiate
51:18
they say well I’ve got a better product
51:20
I want to increase my production this
51:22
year and the other guy says no you can’t
51:25
do that you’re violating a quota and
51:26
often the quotas then breaks up the
51:28
whole agreement breaks up and reach
51:29
illrick rimmon apron you back down again
51:31
okay so this is it’s very difficult to
51:34
maintain sustained quotas of the soar
51:37
over time and also initially that each
51:40
firm has a tremendous temptation to
51:41
cheat here they are the restrictive
51:43
reduction by fifteen percent they have a
51:45
higher price of each baking better
51:47
higher profits each mustn’t believe I
51:49
can only pick up I can cut product cut
51:52
my price of suppliers secretly I could
51:55
pick up enormous increase in Prada and
51:57
then I firm the man curve and get make
52:00
millions so he goes to a supply or the
52:03
other guy tries to look Jim I’ll give
52:05
you a secret discount rebate a
52:06
15-percent a 20-percent you don’t tell
52:08
Westinghouse about whatever because we
52:11
have this a cartel agreement the P
52:13
prices up and cut production so each
52:15
firm of the temptation achieved
52:17
appendage is enormous and a cheat and
52:20
they have a secret read Bay I don’t mean
52:21
an illegal rebate in a sense of of the
52:24
manager stealing from the company may
52:26
simply rebate we say look I’ve said you
52:28
I’ll give you this I’ll tell you this
52:29
product though electrical polyglot where
52:31
there’s four fifteen percent less we
52:33
don’t tell anybody so cuz I don’t want
52:36
to violate my agreement with General
52:37
Electric or westinghouse it whatever so
52:40
each one cheats the pixi on after about
52:41
six months everybody’s spies and
52:43
everybody else and they find out the
52:44
other guy cheats a whole car club breaks
52:46
up a mutual hatred and then back down
52:48
again except now they hate each other so
52:52
every so this is one or two tremendous
52:54
pressure on every car call a cheat and
52:57
to break up
52:58
general who make up Lakota greens and
52:59
the Cheetahs time goes on in many cases
53:02
in railroads and railroads of the big
53:03
business in the 19th century one guy
53:06
with only two railroads and he couldn’t
53:08
get the TV Formica pool or cartel I’d
53:11
say the three railroads two of which was
53:13
owned by the same guy he couldn’t get
53:15
his own managers not that cheap a good
53:17
sales the vice president in charge of
53:19
sales his whole life is the vote of the
53:22
increasing sale he hates by calicut sale
53:24
and they eat so each guy camp was
53:26
competing against the other railroad you
53:27
know in those one tycoon alone both of
53:28
them they still cheated robust of the
53:30
card huh so even when one guy owns about
53:33
companies it’s very difficult to get
53:35
your sales managers or sales vice
53:37
president to go along the idea of
53:39
restricting sales so as a result cartels
53:43
break up from internal pressure number
53:47
one two things which break up every card
53:49
tell one is internal pressure this sort
53:51
of pressure the cheek to to violate your
53:54
to go down your firm demand curve you
53:56
have making big profits boy if I can
53:57
only cut my secretly cut prices by 20
53:59
but sonic and pick up enormous business
54:02
and the second reason is here you have a
54:04
two or three firms get together and
54:06
raise production and cut production and
54:08
raise prices and increased profits I
54:10
want to lose capital around a lot of
54:11
capitalists in the world who have a lot
54:14
of money they like the item investment
54:15
looking around for profitable investment
54:17
they see hey this industry here
54:18
electrical machinery or rare rose
54:20
whatever happens to be or sugar refining
54:22
she’s making high profits that it got
54:24
the whole cartel going let’s go in and
54:25
bust it now let’s go in and put a new
54:27
plant no equipment and undercut the
54:29
cartel so a new capital has come in and
54:32
created have a new railroad or a new
54:33
plant and the a new the old firms are
54:36
now confronted with this new plant with
54:39
better equipment cuz it smoking out
54:40
starting from scratch you’re going to
54:41
use all the modern equipment and then
54:44
they faced with a question either they
54:45
have to cut these guys into the cartel a
54:47
new firm which means they have to cut
54:48
their own production by thirty percent
54:49
of something i Ross the whole call Kyle
54:51
gets busted you back down again square 0
54:54
this is external pressure in other words
54:57
new firms coming in with bet with brand
55:01
new factories inul a to to break up the
55:04
cartel external pressure and when you
55:06
have an external pressure when a new
55:09
sugar refining plant comes in or a new
55:11
shoot production plan a new railroad or
55:13
whatever new firm is there permanently
55:15
in other words here’s the two or three
55:17
firms in the industry a cut production
55:19
raised prices the result of the new firm
55:21
comes then with better equipment out
55:23
competing them back down to square zero
55:25
except man acting they got a fourth firm
55:26
exact of PDM and driving them to the
55:28
wall so no firm likes to do there’s no
55:30
industry like to have an umbrella a
55:33
high-profile umbrella to invite new
55:35
unwelcome competitor in another industry
55:37
so external pressure Israel internal
55:40
pressure broken up every car Chung no
55:41
going on limb every car tell the history
55:43
of the world broken up on the free
55:44
market very quickly program I’m not
55:46
doesn’t they brand won’t either a year
55:48
or two car Pelt has to break up the only
55:51
thing which could sustain a cartels
55:53
government intervention poke sorry card
55:55
cows to keep external keep the price up
55:58
keep production limited and keep new
56:00
firms from coming in this is the
56:02
compulsory where the government comes in
56:04
and forces a card fell that’s the
56:06
essence of what we’re living on the
56:07
right out basically the welfare state of
56:08
the world welfare warfare state whether
56:10
you want cause it’s actually a quarter
56:11
lysing state government davines to try
56:13
to court allies different industries
56:15
venes to try to corte lies different
56:17
industries venes to try to court allies
56:20
different industries

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