Re: Will the free market solve everything?
Mon, 24 Feb 1997 12:37:15 +0000

> As an expert of widget manufacturing I can form 3 conclusions. 1)
> Widgets are expensive to make, if you're giving them away you're
> lousing
> a ton of money.

In the scenario I presented, I did not propose that I *would* give
them away for free, but merely that my available resources were such
that I COULD do so without going broke. What I proposed was
lowering the price to a level that would not allow you to compete
and still remain profitable. I would lose money, but would not
willingly incur any greater losses than were necessary.

> 2) Widgets will not be free forever.

That's the point.

> 3) I hope you are very stubborn and I hope you're corporation has a
> LOT of
> money.

That is two of the preconditions for the thought experiment.

> I buy (not the right word really, they're free) widgets by the
> warehouse full from you, if you can make them I will buy them and
> then ask for more. Now that demand is so huge you MUST build more
> widget factories if they are to remain free or even just cheap, and
> after you finished that factory you must build another one and then
> another. When the day comes when you regain your sanity or just go
> broke I will have a huge supply of widgets that cost me nothing to
> obtain that I can sell for many years at an enormous profit.

This presupposes starting conditions that are significantly different
from my proposed scenario. For this to work you would have to have
enough reserve resources, or a large enough alternative source of
revenue to go without profit while continuing to spend money for an
extended period of time, and I would have to have to be limited
enough in my resources that the losses on widgets would threaten my
economic survival. In the proposed scenario, I am the one with the
vast resources. You also assume that you could buy my widgets for
less than what it would cost you to make your own. This isn't
necessarily the case. All that is required to drive you out of
business is for me to sell them below your total cost including
marketing and distribution, they do not have to be priced below your
manufacturing cost. Even if you buy them from me you still have to
market and distribute them. Not a good situation for a company with
little reserve capital and no other source of income.

My point in all of this was not to suggest that this kind of thing
would happen at every possible opportunity, but merely that it can
happen and does represent a flaw in pure free market economies. A
flaw that would be better addressed than ignored.

William Kitchen

The future is ours to create.