Why Pretending That Captive Markets Are Free Markets Doesn't Work

[PureX]

Let's say there are only two gas stations in a town. One on the east side and the other on the west. And until now, they have both charged the same price per gallon of gas, thinking that if they raise it, their customers will go to the other station for gas. But today, the owner of the eastern gas station decides that this is not the case. He decides that his customers are not going to bother driving all the way to the other station to get their gas if he raises his own gas price by a penny per gallon, because the cost of the drive would erase the savings gained by it. So he does raise his price by a penny. And it turns out that he's right. People don't bother driving across town to save one penny per gallon on their gas.

Now, the owner of the west side gas station sees this, and sees that he has gained no new customers by keeping his gas price a penny lower, so he decides to raise his gas price by two pennies, thinking that if it worked for the west side owner, it'll work for him. And it does! Because even though he has raised his gas price by two cents per gallon, his patrons would still have to pay one cent per gallon more if they drove across town. So all they would be saving themselves is one cent per gallon, and that savings would be eaten up by the extra mileage. So they pay the two cents more for the convenience of not driving to the other side of town for their gas.

Now let's say this little 'price war' goes on for a while, and it results in both station owners charging 10 cents more per gallon for their gas, because the only alternative for their customers is to drive to the next town to buy cheaper gas. And, of course, the drive would just use up ten cent-per-gallon savings on the extra mileage incurred, getting there and back. So they aren't happy about it, but they have to pay the high price, because they have to have gasoline for their cars.

And anyway, we all know that the station owners in the next town will raise their prices accordingly because the station owners in the first town did, and they got away with it.

The problem, here, is that people have to buy gas for their cars, and the people providing that commodity all know it. So the sellers are not going to compete with each other for the lowest price and biggest share of customers. That would only hurt their profit margin (giving more, and getting less). Their goal is not to sell more product, but to sell less product for significantly more money. Because they profit more by giving less out and taking more in. And they ALL share this same goal. So they don't have to meet in back rooms and price-fix to pursue it. They will collude simply by all pursuing the same goal. Price-fixing and price gouging are technically illegal, and so is collusion, but they are nearly impossible to prove when the participants never have to meet or even speak to each other, to do it.

A captive market is a market in which the buyers have to buy from someone, and the sellers all know it. It changes the dynamics considerably when the buyers cannot refuse to buy. As they can in a "free market". Here in the U.S. most of us think we are living in a "free market economy". But in fact everything that we NEED TO BUY to live in a modern, interdependent society is in fact being sold in a captive market. And for that reason the prices go up until the greater portion of buyers simply cannot pay any more than they are.

 

[Twilight Hue]

Let's say there are only two gas stations in a town. One on the east side and the other on the west. And until now, they have both charged the same price per gallon of gas, thinking that if they raise it, their customers will go to the other station for gas. But today, the owner of the eastern gas station decides that this is not the case. He decides that his customers are not going to bother driving all the way to the other station to get their gas if he raises his own gas price by a penny per gallon, because the cost of the drive would erase the savings gained by it. So he does raise his price by a penny. And it turns out that he's right. People don't bother driving across town to save one penny per gallon on their gas.

Now, the owner of the west side gas station sees this, and sees that he has gained no new customers by keeping his gas price a penny lower, so he decides to raise his gas price by two pennies, thinking that if it worked for the west side owner, it'll work for him. And it does! Because even though he has raised his gas price by two cents per gallon, his patrons would still have to pay one cent per gallon more if they drove across town. So all they would be saving themselves is one cent per gallon, and that savings would be eaten up by the extra mileage. So they pay the two cents more for the convenience of not driving to the other side of town for their gas.

Now let's say this little 'price war' goes on for a while, and it results in both station owners charging 10 cents more per gallon for their gas, because the only alternative for their customers is to drive to the next town to buy cheaper gas. And, of course, the drive would just use up ten cent-per-gallon savings on the extra mileage incurred, getting there and back. So they aren't happy about it, but they have to pay the high price, because they have to have gasoline for their cars.

And anyway, we all know that the station owners in the next town will raise their prices accordingly because the station owners in the first town did, and they got away with it.

The problem, here, is that people have to buy gas for their cars, and the people providing that commodity all know it. So the sellers are not going to compete with each other for the lowest price and biggest share of customers. That would only hurt their profit margin (giving more, and getting less). Their goal is not to sell more product, but to sell less product for significantly more money. Because they profit more by giving less out and taking more in. And they ALL share this same goal. So they don't have to meet in back rooms and price-fix to pursue it. They will collude simply by all pursuing the same goal. Price-fixing and price gouging are technically illegal, and so is collusion, but they are nearly impossible to prove when the participants never have to meet or even speak to each other, to do it.

A captive market is a market in which the buyers have to buy from someone, and the sellers all know it. It changes the dynamics considerably when the buyers cannot refuse to buy. As they can in a "free market". Here in the U.S. most of us think we are living in a "free market economy". But in fact everything that we NEED TO BUY to live in a modern, interdependent society is in fact being sold in a captive market. And for that reason the prices go up until the greater portion of buyers simply cannot pay any more than they are.

Don't forget all the regulatory b******* like that stupid 10% ethanol requirement*. Not to mention huge tax levies as well. The government is just as responsible for price issues and more often than not, holds the so called 'free market' hostage.

*Not to mention the insane current price of corn as a result as well.

 

[ChristineM]

Let's say there are only two gas stations in a town. One on the east side and the other on the west. And until now, they have both charged the same price per gallon of gas, thinking that if they raise it, their customers will go to the other station for gas. But today, the owner of the eastern gas station decides that this is not the case. He decides that his customers are not going to bother driving all the way to the other station to get their gas if he raises his own gas price by a penny per gallon, because the cost of the drive would erase the savings gained by it. So he does raise his price by a penny. And it turns out that he's right. People don't bother driving across town to save one penny per gallon on their gas.

Now, the owner of the west side gas station sees this, and sees that he has gained no new customers by keeping his gas price a penny lower, so he decides to raise his gas price by two pennies, thinking that if it worked for the west side owner, it'll work for him. And it does! Because even though he has raised his gas price by two cents per gallon, his patrons would still have to pay one cent per gallon more if they drove across town. So all they would be saving themselves is one cent per gallon, and that savings would be eaten up by the extra mileage. So they pay the two cents more for the convenience of not driving to the other side of town for their gas.

Now let's say this little 'price war' goes on for a while, and it results in both station owners charging 10 cents more per gallon for their gas, because the only alternative for their customers is to drive to the next town to buy cheaper gas. And, of course, the drive would just use up ten cent-per-gallon savings on the extra mileage incurred, getting there and back. So they aren't happy about it, but they have to pay the high price, because they have to have gasoline for their cars.

And anyway, we all know that the station owners in the next town will raise their prices accordingly because the station owners in the first town did, and they got away with it.

The problem, here, is that people have to buy gas for their cars, and the people providing that commodity all know it. So the sellers are not going to compete with each other for the lowest price and biggest share of customers. That would only hurt their profit margin (giving more, and getting less). Their goal is not to sell more product, but to sell less product for significantly more money. Because they profit more by giving less out and taking more in. And they ALL share this same goal. So they don't have to meet in back rooms and price-fix to pursue it. They will collude simply by all pursuing the same goal. Price-fixing and price gouging are technically illegal, and so is collusion, but they are nearly impossible to prove when the participants never have to meet or even speak to each other, to do it.

A captive market is a market in which the buyers have to buy from someone, and the sellers all know it. It changes the dynamics considerably when the buyers cannot refuse to buy. As they can in a "free market". Here in the U.S. most of us think we are living in a "free market economy". But in fact everything that we NEED TO BUY to live in a modern, interdependent society is in fact being sold in a captive market. And for that reason the prices go up until the greater portion of buyers simply cannot pay any more than they are.

Not just the US, the same con trick is going on all over the world.

 

[Revoltingest]

Let's say there are only two gas stations in a town. One on the east side and the other on the west. And until now, they have both charged the same price per gallon of gas, thinking that if they raise it, their customers will go to the other station for gas. But today, the owner of the eastern gas station decides that this is not the case. He decides that his customers are not going to bother driving all the way to the other station to get their gas if he raises his own gas price by a penny per gallon, because the cost of the drive would erase the savings gained by it. So he does raise his price by a penny. And it turns out that he's right. People don't bother driving across town to save one penny per gallon on their gas.

Now, the owner of the west side gas station sees this, and sees that he has gained no new customers by keeping his gas price a penny lower, so he decides to raise his gas price by two pennies, thinking that if it worked for the west side owner, it'll work for him. And it does! Because even though he has raised his gas price by two cents per gallon, his patrons would still have to pay one cent per gallon more if they drove across town. So all they would be saving themselves is one cent per gallon, and that savings would be eaten up by the extra mileage. So they pay the two cents more for the convenience of not driving to the other side of town for their gas.

Now let's say this little 'price war' goes on for a while, and it results in both station owners charging 10 cents more per gallon for their gas, because the only alternative for their customers is to drive to the next town to buy cheaper gas. And, of course, the drive would just use up ten cent-per-gallon savings on the extra mileage incurred, getting there and back. So they aren't happy about it, but they have to pay the high price, because they have to have gasoline for their cars.

And anyway, we all know that the station owners in the next town will raise their prices accordingly because the station owners in the first town did, and they got away with it.

The problem, here, is that people have to buy gas for their cars, and the people providing that commodity all know it. So the sellers are not going to compete with each other for the lowest price and biggest share of customers. That would only hurt their profit margin (giving more, and getting less). Their goal is not to sell more product, but to sell less product for significantly more money. Because they profit more by giving less out and taking more in. And they ALL share this same goal. So they don't have to meet in back rooms and price-fix to pursue it. They will collude simply by all pursuing the same goal. Price-fixing and price gouging are technically illegal, and so is collusion, but they are nearly impossible to prove when the participants never have to meet or even speak to each other, to do it.

A captive market is a market in which the buyers have to buy from someone, and the sellers all know it. It changes the dynamics considerably when the buyers cannot refuse to buy. As they can in a "free market". Here in the U.S. most of us think we are living in a "free market economy". But in fact everything that we NEED TO BUY to live in a modern, interdependent society is in fact being sold in a captive market. And for that reason the prices go up until the greater portion of buyers simply cannot pay any more than they are.

Them's many words.
Do you have a Cliff's Notes version?

 

[Stevicus]

Let's say there are only two gas stations in a town. One on the east side and the other on the west. And until now, they have both charged the same price per gallon of gas, thinking that if they raise it, their customers will go to the other station for gas. But today, the owner of the eastern gas station decides that this is not the case. He decides that his customers are not going to bother driving all the way to the other station to get their gas if he raises his own gas price by a penny per gallon, because the cost of the drive would erase the savings gained by it. So he does raise his price by a penny. And it turns out that he's right. People don't bother driving across town to save one penny per gallon on their gas.

Now, the owner of the west side gas station sees this, and sees that he has gained no new customers by keeping his gas price a penny lower, so he decides to raise his gas price by two pennies, thinking that if it worked for the west side owner, it'll work for him. And it does! Because even though he has raised his gas price by two cents per gallon, his patrons would still have to pay one cent per gallon more if they drove across town. So all they would be saving themselves is one cent per gallon, and that savings would be eaten up by the extra mileage. So they pay the two cents more for the convenience of not driving to the other side of town for their gas.

Now let's say this little 'price war' goes on for a while, and it results in both station owners charging 10 cents more per gallon for their gas, because the only alternative for their customers is to drive to the next town to buy cheaper gas. And, of course, the drive would just use up ten cent-per-gallon savings on the extra mileage incurred, getting there and back. So they aren't happy about it, but they have to pay the high price, because they have to have gasoline for their cars.

And anyway, we all know that the station owners in the next town will raise their prices accordingly because the station owners in the first town did, and they got away with it.

The problem, here, is that people have to buy gas for their cars, and the people providing that commodity all know it. So the sellers are not going to compete with each other for the lowest price and biggest share of customers. That would only hurt their profit margin (giving more, and getting less). Their goal is not to sell more product, but to sell less product for significantly more money. Because they profit more by giving less out and taking more in. And they ALL share this same goal. So they don't have to meet in back rooms and price-fix to pursue it. They will collude simply by all pursuing the same goal. Price-fixing and price gouging are technically illegal, and so is collusion, but they are nearly impossible to prove when the participants never have to meet or even speak to each other, to do it.

A captive market is a market in which the buyers have to buy from someone, and the sellers all know it. It changes the dynamics considerably when the buyers cannot refuse to buy. As they can in a "free market". Here in the U.S. most of us think we are living in a "free market economy". But in fact everything that we NEED TO BUY to live in a modern, interdependent society is in fact being sold in a captive market. And for that reason the prices go up until the greater portion of buyers simply cannot pay any more than they are.

Price controls are always an option. Nothing sends capitalists into conniptions more than a proposal for price controls. Price controls mean that they earn less in profit, and that's unacceptable to them. They claim (often without a shred of evidence) that price controls would be bad for the overall economy, but they don't remember that price controls saved America's economy during WW2.

 

[Stevicus]

Them's many words.
Do you have a Cliff's Notes version?

Here's a cartoon:

 

[Revoltingest]

Price controls are always an option. Nothing sends capitalists into conniptions more than a proposal for price controls. Price controls mean that they earn less in profit, and that's unacceptable to them. They claim (often without a shred of evidence) that price controls would be bad for the overall economy, but they don't remember that price controls saved America's economy during WW2.

Price controls have their downsides.
I recall Jimmy Carter fixing gas prices in 1977.
What happened?
Instead of price rationing, it became waiting-in-line rationing.
Gas stations sold out their entire supply in hours, then shut
down, thereby saving on labor. The profit margin on gas is
often quite small in competitive markets, ie, several stations
to choose from. So I'll bet they made more profit in this
environment.
Where has a command economy worked better than a
market economy?

 

[Stevicus]

 

[Revoltingest]

Here's a cartoon:

First TLTR.
Now TLTW.
I know it's not possible to convince anti-capitalists
that there's no better economic system yet devised.
So I won't try.

Here's a better pro-socialist video....

 

[Stevicus]

Price controls have their downsides.
I recall Jimmy Carter fixing gas prices in 1977.
What happened?
Instead of price rationing, it became waiting-in-line rationing.
Gas stations sold out their entire supply in hours, then shut
down, thereby saving on labor. The profit margin on gas is
often quite small in competitive markets, ie, several stations
to choose from. So I'll bet they made more profit in this
environment.

I don't recall that it was in '77. I recall Nixon rationing during the Arab Oil Embargo of 1973-74, as well as temporary shortages after the fall of the Shah in 1979. Some say it was all a ruse by the oil companies to drive up prices. Carter proposed a higher tax on gasoline, as a disincentive to heavy consumption to conserve what was perceived as limited gasoline supplies. But even his own party opposed him on that.

Where has a command economy worked better than a
market economy?

It depends on how you define "better." Better for whom?

 

[Revoltingest]

I don't recall that it was in '77. I recall Nixon rationing during the Arab Oil Embargo of 1973-74, as well as temporary shortages after the fall of the Shah in 1979. Some say it was all a ruse by the oil companies to drive up prices. Carter proposed a higher tax on gasoline, as a disincentive to heavy consumption to conserve what was perceived as limited gasoline supplies. But even his own party opposed him on that.

The year could be different.....it was a long time ago.

It depends on how you define "better." Better for whom?

Everyone.
That's the easy answer.
But capitalists & anti-capitalists will never agree.
Why?
Capitalism's fans have reality (countries where it works).
Socialism's fans have a dream (the hope that it will some
day somewhere work without oppression & starvation).

(Note that socialism is the only real proposed alternative.)

 

[Stevicus]

First TLTR.
Now TLTW.
I know it's not possible to convince anti-capitalists
that there's no better economic system yet devised.
So I won't try.

Well, you don't have to. The thing is, I try to take a balanced approach, looking at the overall well-being of the entire country, taking into consideration the historical perspective and the entire geopolitical situation. A "system" is not really the be-all and end-all.

Here's a better pro-socialist video....

They kept emphasizing that we drink snow in America. But it doesn't snow all over America; some areas are rather warm, even in winter.

 

[Stevicus]

The year could be different.....it was a long time ago.

Everyone.
That's the easy answer.
But capitalists & anti-capitalists will never agree.
Why?
Capitalism's fans have reality.
Socialism's fans have a dream.
(Note that socialism is the only real proposed alternative.)

Well, if capitalism is better for everyone and all is so wonderful, why would there be any socialists at all? Why would anyone oppose a system which is so perfect and idyllic as capitalism?

 

[BSM1]

Well, if capitalism is better for everyone and all is so wonderful, why would there be any socialists at all? Why would anyone oppose a system which is so perfect and idyllic as capitalism?

Because they don't understand capitalism...

 

[Revoltingest]

Well, if capitalism is better for everyone and all is so wonderful, why would there be any socialists at all? Why would anyone oppose a system which is so perfect and idyllic as capitalism?

The desire to get more for less work.
The problem is that it's an attractive idea,
but in practice it doesn't work out well.

 

[Revoltingest]

Because they don't understand capitalism...

....or socialism.
But this should help.

 

[Stevicus]

Because they don't understand capitalism...

If they live under capitalism, you can bet that they understand it.

 

[Revoltingest]

If they live under capitalism, you can bet that they understand it.

Most people just coast thru life, supersizing orders, never taking the initiative to start a business.
They don't even understand the system they're part of. Their employer handles their taxes &
provides health care. All they do is show up for work, go thru the motions, & then head home
to eat Domino's pizza while watching Wheel Of Fortune. But they know they want more.
And evil corporations aren't giving it to them. Socialists will spread that ill gotten lucre!

 

[BSM1]

Most people just coast thru life, supersizing orders, never taking the initiative to start a business.
They don't even understand the system they're part of. Their employer handles their taxes &
provides health care. All they do is show up for work, go thru the motions, & then head home
to eat Domino's pizza while watching Wheel Of Fortune. But they know they want more.
And evil corporations aren't giving it to them.

....or socialism.
But this should help.

I would guess that the next frame would have to show one standing on the other to get out of the hole....

Most people just coast thru life, supersizing orders, never taking the initiative to start a business.
They don't even understand the system they're part of. Their employer handles their taxes &
provides health care. All they do is show up for work, go thru the motions, & then head home
to eat Domino's pizza while watching Wheel Of Fortune. But they know they want more.
And evil corporations aren't giving it to them.

Well, heck...now I want to be a Socialist...

 

[icehorse]

Capitalism's fans have reality (countries where it works).
Socialism's fans have a dream (the hope that it will some
day somewhere work without oppression & starvation).

(Note that socialism is the only real proposed alternative.)

This is a key point!!!! Thanks @Revoltingest !!

There are many other economic systems, and I suspect (I don't know, I suspect), that somewhere in between the US's current system (what should we call it "rigged capitalism"?) and socialism, there is a system that doesn't fall prey to the extremes of either side.