Libertarianism Declared Dead

[Mister Agenda]

One day some bright young executive fresh out of MBA school runs some numbers and realizes that if the price of gas were 25 cents higher, they would make a lot more money. He is also bright enough to know that his company can't be the only one to raise the price of gas, as people will just buy it cheaper from one of the other 4 companies. So, he gets together with other bright young executives from the other 4 companies and proposes that they all agree to raise the price together, which will mean a rise in profits for all. The others all agree, and the next thing you know gas is 25 cents higher.

The consumers are all upset, but they need gas so they pay the extra 25 cents to get it.

Where, if anywhere, is the 'initiation of force or fraud' in this scenario? Where would an ideal Libertarian government step in, if at all?

No force or fraud is involved. A Libertarian government would not step in. Since the five extant companies have forgotten why there are only five gas companies in town, I would take advantage of the opportunity to start my own fuel company, charge 25 cents less than my competitors, and take their business. Worst case scenario for me is that they drop their prices lower than mine making it hard for a newbie like me to compete, but at least I've got a shot to establish my business that I wouldn't have had when everyone was charging competitive prices and the people of the town are the winners in a price war.

 

[bobrayner]

No force or fraud is involved. A Libertarian government would not step in. Since the five extant companies have forgotten why there are only five gas companies in town, I would take advantage of the opportunity to start my own fuel company, charge 25 cents less than my competitors, and take their business. Worst case scenario for me is that they drop their prices lower than mine making it hard for a newbie like me to compete, but at least I've got a shot to establish my business that I wouldn't have had when everyone was charging competitive prices and the people of the town are the winners in a price war.

You seem to be assuming low barriers to entry, which is not necessarily the case in the real world. Sometimes incumbents even deliberately raise barriers to entry. There are many real-world examples of businesses attempting this - and of state intervention against these businesses to protect the consumer's interest.

If you know that it's likely that incumbents will use predatory pricing to put you out of business, would you ever sink your own money into starting the business? Or could you find somebody else willing to lend to such a doomed enterprise? Needless to say, once you've wasted your life savings the incumbents can put their prices back up again. Is that really such a great opportunity for you?

Also, in your example, if one of the incumbents also controls much of the market upstream, they may gain more from excluding you than they would from offering you a competitive price - in which case your business will never sell anything. Unless, of course, you intend to build a huge extraction, processing, distribution, and retail business from scratch...

Good luck starting your own airline, bank, or telco in the face of uncooperative incumbents!

 

[dudalb]

It's not like Libertarianism was ever anywhere near a Mainstream political movement anyway.
It will survive, but it will probably not be as "fashionable" as it has been the past few years on college campuses...which have always been where Libertariansim is really centered. Interesting how many people stop being Libertarians when they get out into the real world.

 

[The Central Scrutinizer]

It's not like Libertarianism was ever anywhere near a Mainstream political movement anyway.
It will survive, but it will probably not be as "fashionable" as it has been the past few years on college campuses...which have always been where Libertariansim is really centered. Interesting how many people stop being Libertarians when they get out into the real world.

It's amazing how many people stop being a lot of things when they get out into the real world. Those that don't become professional students.

 

[ponderingturtle]

No force or fraud is involved. A Libertarian government would not step in. Since the five extant companies have forgotten why there are only five gas companies in town, I would take advantage of the opportunity to start my own fuel company, charge 25 cents less than my competitors, and take their business. Worst case scenario for me is that they drop their prices lower than mine making it hard for a newbie like me to compete, but at least I've got a shot to establish my business that I wouldn't have had when everyone was charging competitive prices and the people of the town are the winners in a price war.

So would the libertarian goverment prevent the 5 companies from selling gas at cost to them in any city where compeating gas stations existed?

They are making up for it in the cities where there are no compeating stations, so preventing such competition is in their interests.

 

[Mister Agenda]

Snip
Scenario B could easily happen if a cartel was a small group and controlled 100% of the market as per the example. And the cartel of gas station owners is its own internal government in the scenario. So your position that it just wouild not happen is a matter of faith. Would a libertarian society enforce against such cartels, and why (in whose interest)?

How would such a cartel enforce internal discipline? I don't claim it would just not happen, but cartels certainly have broken down on their own because one member took advantage of the fixed prices to undercut the competition. Why settle for a fifth of the pie when you can get a fourth by being the one to offer customers lower prices first?

 

[Mister Agenda]

So would the libertarian goverment prevent the 5 companies from selling gas at cost to them in any city where compeating gas stations existed?

They are making up for it in the cities where there are no compeating stations, so preventing such competition is in their interests.

Selling gas at cost to who?

 

[Mister Agenda]

You seem to be assuming low barriers to entry, which is not necessarily the case in the real world. Sometimes incumbents even deliberately raise barriers to entry. There are many real-world examples of businesses attempting this - and of state intervention against these businesses to protect the consumer's interest.

If you know that it's likely that incumbents will use predatory pricing to put you out of business, would you ever sink your own money into starting the business? Or could you find somebody else willing to lend to such a doomed enterprise? Needless to say, once you've wasted your life savings the incumbents can put their prices back up again. Is that really such a great opportunity for you?

Also, in your example, if one of the incumbents also controls much of the market upstream, they may gain more from excluding you than they would from offering you a competitive price - in which case your business will never sell anything. Unless, of course, you intend to build a huge extraction, processing, distribution, and retail business from scratch...

Good luck starting your own airline, bank, or telco in the face of uncooperative incumbents!

It takes skill and resources, but luck never hurts, so thank you. I could already have my own chain of businesses, and am targeting the town because of the opportunity the local vendors have provided me and have plenty of resources to make a go of a price war. Plus I bet I get some customer loyalty because it's obvious my competition is composed of bad actors. Or maybe I could get a loan from someone with a vested interest in breaking up the cartel. Or form a coalition to do so. Or get support pledges from fed-up citizens to guage the support I can count on in a price war. Or make a deal with a gas supplier that the incumbents don't use. Or some combination of those or other ideas that someone with a real interest could come up with over weeks of planning.

You don't need government intervention for citizens to act, either. How about boycotting one of the 'Big 5' until it lowers its prices? Running news stories on the cartel? Social pressure? Presumably at least some of them have to live in that town.

Those kooky libertarians, thinking there could possibly be any successful approach to a problem besides government intervention.

 

[SaulOhio]

ponderingturtle: There has never in history been a real-life example of anyone successfully cornering a market by predatory pricing. The best that those arguing that we need laws against it can do is some game theory that shows how it MIGHT be done successfully. But all attempts to corner a market by predatory pricing have failed, BECAUSE of market forces.

Like this one:

For example, Herbert Dow not only found a cheaper way to produce bromine but also defeated a predatory pricing attempt by a government-supported German cartel, Bromkonvention, who objected to his selling in Germany at a lower price. Bromkonvention retaliated by flooding the US market with below-cost bromine, at an even lower price than Dow's. But Dow simply instructed his agents to buy up at the very low price, then sell it back in Germany at a profit but still lower than Bromkonvention's price. In the end, the cartel could not keep up selling below cost, and had to give in. This is used as evidence that the free market is a better way to stop predatory pricing than government regulation such as anti-trust laws.

 

[Thanz]

The 'Guido Clause' in the contract would not be legally enforceable under a Libertarian government. Bob's right to not have force initiated against him is inalienable. 'But he said I could hit him' is not a defense against assault charges in a Republican, Democrat or Libertarian government. Fortunately for Bob, resources besides the government and Tony exist.

First, you are going against the main premise of libertarianism that only Bob can say if he gets hit or not. If Bob wants to get hit, why should a libertarian gov't intervene? This is the entire basis for the libertarian objection to such 'victimless' crimes like drug abuse.

Second, you are just wrong. Consent is a common defence against assault. Although, to be fair, many jurisdicitions limit the amount of consent that one can give to assault - usually in some relation to the amount of harm.

 

[Thanz]

How would such a cartel enforce internal discipline? I don't claim it would just not happen, but cartels certainly have broken down on their own because one member took advantage of the fixed prices to undercut the competition. Why settle for a fifth of the pie when you can get a fourth by being the one to offer customers lower prices first?

Because a guarantee of profits is better. If through competition the amount spent on gas by consumers is 100, and through collusion that can be brought up to 125, and guarantee yourself 1/5 (25) why gamble and work harder for 1/4 of the smaller pie (25) that is the same amount?

The major players in the vitamin and food additive business divided up the world market and set prices fo rover a decade.

 

[Chaos]

First, you are going against the main premise of libertarianism that only Bob can say if he gets hit or not. If Bob wants to get hit, why should a libertarian gov't intervene? This is the entire basis for the libertarian objection to such 'victimless' crimes like drug abuse.

Second, you are just wrong. Consent is a common defence against assault. Although, to be fair, many jurisdicitions limit the amount of consent that one can give to assault - usually in some relation to the amount of harm.

Did you notice how ironic (not to mention hypocritical, as usual) the libertarian position is, in that they condemn a man to death (by denying him the ability to negotiate loan conditions that ensure his survival) under the pretense of "inalienable rights"?

It seems that libertarians do want an authoritarian nanny state that restricts peoples´ rights in order to "protect" them, after all. Not so different from what they keep complaining about, then...

 

[Francesca R]

Libertopia is a fantasy world where things that can be proven to exist in the real one magically disappear (adverse selection, moral hazard, public goods, free-riders, many externalities) and thing that are as imaginary as god magically appear (inalienable rights, complete alignment of group interests with individual interests, fully self-regulating markets).

That's not completely true but as an approximation I think it summarises the glaring shortcomings of the libertopian faith.

 

[Mister Agenda]

First, you are going against the main premise of libertarianism that only Bob can say if he gets hit or not. If Bob wants to get hit, why should a libertarian gov't intervene? This is the entire basis for the libertarian objection to such 'victimless' crimes like drug abuse.

Second, you are just wrong. Consent is a common defence against assault. Although, to be fair, many jurisdicitions limit the amount of consent that one can give to assault - usually in some relation to the amount of harm.

Er, I'm presuming Bob does not want to have his legs broken and complains about it. The main premise of libertarianism is that you don't have the right to initiate violence or fraud. The entire basis for the libertarian objection to classifying personal drug use by adults criminal is that it does not involve the initiation of force or fraud.

However, I concede your other point, for the most part, my observation was too general. Certainly you're allowed to take your chances in the ring, or allow a doctor to break a bone for medical reasons. However you never give up your right to change your mind. You can leave the ring or refuse the treatment, and if they drag you back and hurt you anyway, it's definitely assault. If Bob chooses to submit to the assault and not press charges there's not much the US Government can do for him no matter which party has the majority.

 

[Mister Agenda]

Because a guarantee of profits is better. If through competition the amount spent on gas by consumers is 100, and through collusion that can be brought up to 125, and guarantee yourself 1/5 (25) why gamble and work harder for 1/4 of the smaller pie (25) that is the same amount?

The major players in the vitamin and food additive business divided up the world market and set prices fo rover a decade.

If you are correct, then cartels would never break.

Isn't that illegal?

 

[Mister Agenda]

Did you notice how ironic (not to mention hypocritical, as usual) the libertarian position is, in that they condemn a man to death (by denying him the ability to negotiate loan conditions that ensure his survival) under the pretense of "inalienable rights"?

It seems that libertarians do want an authoritarian nanny state that restricts peoples´ rights in order to "protect" them, after all. Not so different from what they keep complaining about, then...

Your comment seems to be a non sequitur in that my observation was that a contract in which Bob agreed to let his legs be broken would be unenforceable. Is it the Democrats or the Republicans that passed the law that says a bank has to give a dying man a loan?

 

[Mister Agenda]

Libertopia is a fantasy world where things that can be proven to exist in the real one magically disappear (adverse selection, moral hazard, public goods, free-riders, many externalities) and thing that are as imaginary as god magically appear (inalienable rights, complete alignment of group interests with individual interests, fully self-regulating markets).

That's not completely true but as an approximation I think it summarises the glaring shortcomings of the libertopian faith.

I agree. The same of course is true of those people who claim miraculous things will occur when Democrats or Republicans finally have enough power to enact all their ideas, but a greater percentage of Libertarians are particularly prone to dwell on the fantasy rather than the reality that going past the 'socially liberal fiscally conservative' foundation that makes one a 'small l' libertarian is entering a highly theoretical space. We'd be better off dumping the theory and concentrating on providing a classic liberal alternative to the other parties. If we're dramatically successful in twenty years we could be a third party with some representation at the federal level and a chance to be in more debates. No degree of success would give us more than the same kind of influence the major parties possess, and that would probably have to involve displacing one of them, and I think they might wind up becoming virtually identical to the displaced party in that case. The United States will never, ever, be Libertopia. It might become a place where someone could try the experiment on a local level some day. Frankly I think Libertarians might serve best as a vocal minority of 10 or 20% of congress to damp the excesses of the major parties and suggest alternative solutions, but that doesn't seem to be a likely or stable outcome in our 'winner-take-all' political arena.

 

[Thanz]

Er, I'm presuming Bob does not want to have his legs broken and complains about it. The main premise of libertarianism is that you don't have the right to initiate violence or fraud. The entire basis for the libertarian objection to classifying personal drug use by adults criminal is that it does not involve the initiation of force or fraud.

However, I concede your other point, for the most part, my observation was too general. Certainly you're allowed to take your chances in the ring, or allow a doctor to break a bone for medical reasons. However you never give up your right to change your mind. You can leave the ring or refuse the treatment, and if they drag you back and hurt you anyway, it's definitely assault. If Bob chooses to submit to the assault and not press charges there's not much the US Government can do for him no matter which party has the majority.

How is Bob's consent to harm revocable by him? If he agrees to do something, and then goes back on that promise, or agress to it knowing full well he won't honour the promise, hasn't he committed a fraud? Is a Libertarian gov't interested in limiting what people can contract for? Doesn't a libertarian gov't want to enforce contracts?

 

[Thanz]

If you are correct, then cartels would never break.

Isn't that illegal?

Yes, it is in the real world, which is why they have been prosecuted when the scheme came to light. In Libertopia, however, such behaviour would be fine - wouldn't it?

 

[ponderingturtle]

Yes, it is in the real world, which is why they have been prosecuted when the scheme came to light. In Libertopia, however, such behaviour would be fine - wouldn't it?

Of course it would be. Just like there was nothing wrong with when auto companies bought up private mass transit companies to put them out of business to get more people to buy cars.

In the libertarian world view such things are the market in action, not illegal conspiracies like they were in our world.