Free Market vs Socialism

[Arta]

I am not saying take away all law, not encouraging anarchy.

I know you're not - I'm just providing an analogy.

I am just saying that even if the law were removed there would still be regulation. The market will naturally regulate it's self. Its regulation in the first place that corrupts it's ability to do so.

In  the same way that people, in the absence of all law, would regulate themselves?

Its regulation in the first place that corrupts it's ability to do so.

In the same way that the existance of law corrupts people's ability to conduct themselves legally?

[quasi-modo]

I am not saying take away all law, not encouraging anarchy.

I know you're not - I'm just providing an analogy.

I am just saying that even if the law were removed there would still be regulation. The market will naturally regulate it's self. Its regulation in the first place that corrupts it's ability to do so.

In  the same way that people, in the absence of all law, would regulate themselves?

Its regulation in the first place that corrupts it's ability to do so.

In the same way that the existance of law corrupts people's ability to conduct themselves legally?

Arta, comapnies exist to make a profit. The exist to have more revenue then expence... to make money. I am not saying we are not going to have laws like it is okay to steal, I am talking about many regulatory laws and taxes that affect only businesses. Because of the fact that companies always drive to make money is going to keep them in line, because if you are initially in competition you will have more money by lowering your price because you will have more customers (this is really over simplified). But businesses are not going to act like people. Comparing this to how people act without any law is comparing a free market to anarchy, it is a very bad analogy and unacurate.

[Adron]

One thing... What does your diagram say about limited number of customers?

If there are 1000 people needing 2000 gallons of fuel each day, there are two gas stations, and you are currently charging $295/gallon in a cooperative price-raising action, that means you currently make $295000/day. If you drop your price to $2/gallon, all customers will come to you, and you will make $2000/day. That doesn't seem like a good idea to me?

[quasi-modo]

My dagram explained with a very limited number of customers. The reason why your math shows more revenue is because the gas is marked up a whole lot vs few customers. The idea is that the comapnies will never get the price hked that high to beginw ith because they are going to backstab eachother before a point like that. I doubt the gas stations will just say the price is up .95. People can always go further down the road.

[Forged]

In the Game Theory everyone trys to do what is best for themeselves.  In this paticular situation it is deffinatlly best for the gas stations to raise their price.  If one gas station backstabs the others it will only be a day or two before the others lower their prices as well.  The Gas stations would make more money and they know they will make more money if everyone is trustworthy.  So there is no reason to back stab.

[quasi-modo]

In the Game Theory everyone trys to do what is best for themeselves.  In this paticular situation it is deffinatlly best for the gas stations to raise their price.  If one gas station backstabs the others it will only be a day or two before the others lower their prices as well.  The Gas stations would make more money and they know they will make more money if everyone is trustworthy.  So there is no reason to back stab.

Look, in real life they would not make more money by raising the price. Before the price skyrocketed like in adron's example one station would have dropped its price and gotten more customers. That is what game theory suggests. That is what I was trying to show you with the diagram. No, they will not make more money when they collude. Also, with gas you are in almost perfect competition with other gas stations right? Because gas is gas. So if you tried to collude, it would fail. Sure stations on the corner of the highway will jack the prices up a little more, but not every gas station in the world can get together and jack the price. In reality opec can, but that is because they are governments colluding and that is completely out of our scenario here.

[Forged]

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

[quasi-modo]

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

It benefits gas station a right then and there. How can you just walk accorss the street and say lets raise our prices together? Becuase the second they start one will drop its prices and so will the other because they will both get more money on the spot by doing so. Who cares if combined they would have raised more, its all about how much total one station can make. And anyways, like I said, in the gas market it is pretty close to perfect competition as gas is gas is gas. My car will run on hess, bp, amoco, shell, chevron, kangaroo, or any other station. I get gas at whatever station is most conveiniant for me at the moment and if there are two side by side I go to the one with the lower price.

[MyndFyre]

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

It benefits gas station a right then and there. How can you just walk accorss the street and say lets raise our prices together? Becuase the second they start one will drop its prices and so will the other because they will both get more money on the spot by doing so. Who cares if combined they would have raised more, its all about how much total one station can make. And anyways, like I said, in the gas market it is pretty close to perfect competition as gas is gas is gas. My car will run on hess, bp, amoco, shell, chevron, kangaroo, or any other station. I get gas at whatever station is most conveiniant for me at the moment and if there are two side by side I go to the one with the lower price.

The other two can just lower their prices to match.  There is no benefit for everyone to not work together.

You're suggesting that it is irrational for people to work together.  It's not; that is, in fact, the basic premise behind liberalism, and capitalism is really an extension of liberalism into the marketplace.

Hobbes (Pre-liberalism): People rationally choose to give up all of their rights collectively to the Leviathan, because the Leviathan will protect them.
Locke (Liberalism): People rationally choose to give up their right to be their own judge, jury, and executioner, because it protects them from others and works in the best interest of themselves; all other rights are preseved.
Smith (Capitalism): Consumers in the marketplace will regulate the marketplace when they act in their own best interests.
Nash: Producers and consumers in the marketplace will be most successful when they work not only in their own best interests but also in the best interests of the collectivity.

Have you seen A Beautiful Mind?  Nash made a very significant contribution not only to economics, but also to game theory.

Quasi, your entire argument rests on the belief that one gas station owner will lower his price and the other two will just clunk around at the higher price.  That notion is retarded and most CERTAINLY irrational.

[Arta]

Because of the fact that companies always drive to make money is going to keep them in line, because if you are initially in competition you will have more money by lowering your price because you will have more customers (this is really over simplified). But businesses are not going to act like people. Comparing this to how people act without any law is comparing a free market to anarchy, it is a very bad analogy and unacurate.

I think people and companies are pretty similar. Companies are just large groups of people, in the end. Companies and people both need money to survive. Both tend to want as much money as possible. The majority of both tend to stick to the rules, but there will always be a minority of both that don't. For some people, stealing is a quicker and easier way to make money than having a job. For some companies, getting rid of their competitors by dishonourable means is quicker and easier than competing fairly. I don't really understand how you can claim that that isn't the case.

[Adron]

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

It benefits gas station a right then and there. How can you just walk accorss the street and say lets raise our prices together? Becuase the second they start one will drop its prices and so will the other because they will both get more money on the spot by doing so. Who cares if combined they would have raised more, its all about how much total one station can make. And anyways, like I said, in the gas market it is pretty close to perfect competition as gas is gas is gas. My car will run on hess, bp, amoco, shell, chevron, kangaroo, or any other station. I get gas at whatever station is most conveiniant for me at the moment and if there are two side by side I go to the one with the lower price.

In most cases it doesn't actually benefit right then and there. People buy things where they're used to, they don't go to a different place just because the prices dropped a tiny bit. It takes time to pull people over. If two stations are side by side, perhaps, but even then, I tend to stick to my brand unless there's a huge price difference. Better to get everything on the same bill than to have two different ones to handle.

[Adron]

not every gas station in the world can get together and jack the price. In reality opec can, but that is because they are governments colluding and that is completely out of our scenario here.

That's not because they are governments colluding. That's because they are a few entities colluding. It doesn't matter if it's a few governments or if it's a few huge companies. If there isn't regulation imposed from the outside, the people running the companies will get together and suggest some "regulations" (that aren't regulations, since they aren't imposed by a government) that will help their common interest in generating more income for everyone.

[quasi-modo]

This is hopeless... I am trying to convince the forum socialists that their economic views are flawed and they are not even really grasping what I am trying to tell them. I have told some others on this forum and a few others what I am telling you and they found this all perefectly logical. This is principle is basic and you guys keep trying to think of what if this and what if this, but this is a very fundamental principle. Companies are not going to try to work together, company A is not interested in how company B is doing and looking out for company B. Company A just wants to line the pockets of it's self. That force will always be consistant.

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

Quasi, your entire argument rests on the belief that one gas station owner will lower his price and the other two will just clunk around at the higher price.  That notion is retarded and most CERTAINLY irrational.

No, it doesn't. My argument is centered around the fact that the other companies can't lower their prices fast enough to sway a few customers from going to company A. If we were to use something else, besides a gas station as an example, you would find that the little bit of time it takes to make that change could make a big difference. Lets talk about something else like LCD tvs or something.

[MyndFyre]

This is hopeless... I am trying to convince the forum socialists that their economic views are flawed and they are not even really grasping what I am trying to tell them.

Calling us "socialists" does not build your credibility.  I am most certainly a Lockean liberal (in other words, a less-extreme libertarian), but I also do not believe that people given free reign to act both interpersonally (politically) and in the market (economically) will be ultimately positive to the economy. 

I have told some others on this forum and a few others what I am telling you and they found this all perefectly logical. This is principle is basic and you guys keep trying to think of what if this and what if this, but this is a very fundamental principle. Companies are not going to try to work together, company A is not interested in how company B is doing and looking out for company B. Company A just wants to line the pockets of it's self. That force will always be consistant.

Generally speaking, actors will act in the best interests in the short term of themselves before acting in the best interests of themselves in the long term.  This is irrational when the benefit per time of the long term is greater than the benefit per time of the short term.  Refer to information on the Nash Equilibrium: specifically, look at the first matrix under "Coordination Games."  Also note:

An example of a coordination game is the setting where two technologies are available to two firms with compatible products, and they have to elect a strategy to become the market standard. If both firms agree on the chosen technology, high sales are expected for both firms. If the firms do not agree on the standard technology, few sales result. Both strategies are Nash equilibria of the game.

They would get more customers for a couple of days and then the other two would drop their prices as well. That really benefits no one.

Quasi, your entire argument rests on the belief that one gas station owner will lower his price and the other two will just clunk around at the higher price.  That notion is retarded and most CERTAINLY irrational.

No, it doesn't. My argument is centered around the fact that the other companies can't lower their prices fast enough to sway a few customers from going to company A. If we were to use something else, besides a gas station as an example, you would find that the little bit of time it takes to make that change could make a big difference. Lets talk about something else like LCD tvs or something.

Let's say that companies A and B both sell 20 units of LCD TVs at a profit of $750 per day.  Company A lowers it profit margin to $650 (effectively cutting its profit by $100 per unit) but increases its sales to 25.

Company A: $16250
Company B: $11250

All in all, less money is being made (they were both making $15,000 per day of profit, for a total of $30,000 money made; now, only $27,500); if company B does not lower its prices to compete, they will be driven out of the market.  If they do lower their prices, both companies may lay off employees to recoup the loss in profit (once company B lowers its price, the market will return to equilibrium; and both companies will be making less money.  Let's say there is a two-day lag between the time that B lowers its price.

Company A: two-days profit, $32,500.
Company B: two-days profit, $22,500.

Company B lowers its profit to $650 per unit and the market returns to equilibrium.  Both companies again sell 20 units per day apiece.  Total profit for both companies is now $13,000 per day.  This is an overall loss of $2,000 per day; Company A only made $2,500 above its original profit; by the time the second day is half-through, company A will already be at a loss for lowering its price.  A different profit difference will only make it a different amount of time before both companies are losing money equally.

If companies A and B work together, as Nash's Equilibrium suggests, they will make more money in the long term.

It is rational and in their interest to work together.

[quasi-modo]

But that fails to take into account the fact that for an elastic good, the total number of buyers will go up with a lower price. So the two could very well be making more money selling lower anyway, but company a is going to make off like a bandit for the time when they cut below b. If you are increasing the consumer surplus the demand is on the rise.

PS: I was not calling you a socialist myndfyre, mainly the people that have names that begin with A.

some other things to talk about: we still have the fact that government intervention is bad because of taxation which causes a dead weight loss in the market's efficiency, and the fact that the government (US) has historically screwed things up with price ceilings and price floors and I would also like to talk about those since they do have to do with this subject.