Re: My take on the State of the Union

Andreas Pour wrote:
> James Richard Tyrer wrote:
> 
>>Andreas Pour wrote:
>>
>>
>>>>Actually, it is a cartel, but yes it is a monopoly because it has
>>>>monopoly power due to the nature of the market.
>>>
>>>
>>>So, I guess it is not necessarily a mistake to say "oligopoly is a
>>>monopoly".
>>>
>>
>>If there is collusion, their function would be the same.  A cartel is
>>always collusive so, as I said, a cartel is a monopoly.
> 
> 
> Be careful of "always".  OPEC has frequently has "over-production" by member
> states.
> 
A group of producers that don't collude, don't discuss price and production 
with each other, can not be a cartel.
> 
>>The important
>>distinction is that a monopoly will raise their price above the market
>>price even though it results in lower sales if this results in higher
>>profits.  The OPEC cartel controls enough of the market that they can
>>basically set the price by regulating production.
> 
> 
> Monopoly is simply the lack of competition.  Profits may or may not be a goal of
> the enterprise.  For example, the US military has a national monopoly on nuclear
> weapon production, yet its goal is not profits.  Or profit may be secondary to
> other goals - e.g., license plate production facilities operated by prison
> inmates.
> 
It has a specific meaning in economics which is the definition for this 
context.  Many words have different meanings in different contexts.  But, 
what is the point?  Specifically, I was talking about monopoly pricing 
which has an even more specific meaning.

> [ ... ]
> 
> 
>>>In concentrated oligopoly there is inherent collusion.  Why do you think
>>> all the gas stations charge the same price and change prices at the
>>>same time (in lock-step)?
>>
>>Another Leftist canard.  If you drag out your economics text, you will see
>>that under ideal competition all suppliers charge the same price.
> 
> 
> If I wanted to hear insipid and irrelevant economics propaganda (you know, the
> type self-styled conservatives like to harp about as if it mattered somehow in
> the real world) I could get it from a source much better than you.  You know,
> the economists that try to tell me that unemployment exists b/c people are lazy,
> or, better yet, that I should not worry that money is worthless, it makes no
> difference, or even currently the ones who tell me it is a good thing for the US
> economy that all the manufacturing jobs are moving overseas.
> 
I'm not talking about any of that political junk and you would find that my 
thoughts on these issues are not what you suggest.  But as a 
paleo-conservative what do you expect I will think about classical economic 
theory.  That is what the dictionary definition of conservative is:

2 a : one who adheres to traditional methods or views

So, unless you prove that generally accepted economic theory is wrong, you 
can expect that I will take it as fact.
> 
>>What
>>surprises me is that all the gas stations do NOT charge the same price.
>>How do you explain the ones that charge a higher price.
> 
> 
> There are many variables involved; what is more interesting than what the retail
> outlet charges is what the retail outlet pays.
> 
And what does that have to do with my statement since most stations are 
company owned stations.
> 
>>I accept what
>>classical economic theory says that companies that have market power are
>>able to charge more than the "free market" price.
> 
> 
> There is no "free market".  The thing one might think would be really close -
> computerized trading, e.g., NASDAQ - isn't even close to free (check out the
> transaction fees).
> 
The only ideal free market is the one that exists in economic theory. 
However, the market for commodities that are traded on an exchange comes 
very close to it.
> 
>>This leads to the question of whether the companies charging more for
>>gasoline are engaging in monopoly pricing.  The answer to this can not be
>>found in their pricing.  The question is whether they are selling all of
>>the gasoline that they have the capacity to produce.
> 
> 
> That might make sense but the Empire owns the refineries, controls the
> distribution channels, and greatly influences OPEC, which, as you noted,
> regulates production (see e.g. http://www.antiwar.com/justin/j012302.html ;
> http://www.antiwar.com/justin/pf/p-j013002.html for the case of Rockefeller
> influence over Saudi Arabia oil).  The whole chain not only provides the Empire
> with much higher than "normal" profits, it grants it a tremendous amount of
> political power as well.
> 
> Let's not forget that Standard Oil is almost reconstituted.  The Rockefellers
> had tried to avoid being caught in the early twentieth century by forming a
> holding company and exercising control through this entity.  That effort was
> detected and Standard Oil nevertheless "broken up".  Does that mean that the
> family and its allies in the Empire did not continue having large holdings in
> each of the spin-offs, and did not continue to have vast power in the oil
> industries?  Indeed they retained control over Mobil, Exxon and Socal, and who
> knows how much control they and their allies achieved over the other spin-offs.
> 
> 
>>Do you have any
>>information on that?  I hope that it would be obvious even to a leftist
>>that if they are setting their price so that they will sell all of their
>>production that it is actually the market which is setting the price.
> 
> 
> But they also control production, so if you can believe their information, all
> it means is they do "just-in-time" refining.  Saves on storage that way, I
> suppose, and also it enables them to change the price quickly when they choose
> to.
>  
> 
>>>It does not make sense for them to compete - and so one of the pricing
>>>mechanisms used is a "market leader" who will change prices and the
>>>others immediately follow suit.
>>
>>And how is this different than ideal competition.
> 
> 
> The price provides extraordinary profits.  Note though that determining profits
> is very difficult as it is easy to siphon off profits in a wide variety of ways
> (derivatives, futures, vendors, shippers, etc.).
> 
> 
>>>That is not considered "price-fixing" by law, but still one company
>>>controls the price.
>>
>>Actually, that is the classical theory, but it doesn't seem to apply to
>>gasoline lately because the other normal part of oligopoly pricing isn't
>>present -- unchanging prices.
> 
> 
> If you would try thinking about it, instead of being wed to case studies in
> right-wing economics books, 

You see, that is the problem.  There is no factual relativism.  Theoretical 
economics is a science and so there is no Right wing or Left wing economics 
just like there is no Right wing or Left wing thermodynamics (well there 
are some Leftists that think that they can beat the Second Law -- but that 
is another story).  Actually the standard college economics text 
(McConnell) is rather liberal.  So, if you have read it and find it "Right 
Wing" it is only further prof that you are a Leftist.

> you might consider that, making a number of
> requisite simplistic assumptions that are never true and particularly not so in
> the oil industry, the spread, not the price, would be largely unchanging in
> monopolies as well as collusive oligarchies.
> 
There is no reason that the price would be unchanging in a monopoly.  There 
is no discontinuity in the individual supplier's perceived demand curve. 
You see, even a monopoly is subject to the market.  The difference is that 
a true monopoly maximizes its profit by charging a price slightly higher 
than the "free market" price.
> 
>>>Then you have also interlocking directorships, trade groups, group
>>>lobbying, ownership overlap, etc.
>>>
>>>The result is if you study pricing partterns and profit margins in
>>>concentrated oligopolies they do not differ much from monopolies.
>>
>>And would that include oligopolies where companies sell product at a loss
>>to maintain market share.  How often does that happen with a monopoly?
> 
> 
> I suppose that depends how you define the market, always a tricky proposition. 
> But certainly there have been new products introduced that had no "competition"
> that were loss-leaders.

The example cited is TV manufacturers in the US in the past when there were 
no imports.


> [ ... ]
>  
> 
>>>and restaurants are not; but yet oil companies engage in significant
>>>branding to make their market seem less commodity-like in public
>>>perception.
>>
>>Yes, you do get it.  And it is that product differentiation which gives them
>>the necessary market power to charge more than their competitors for what
>>is actually a commodity product.
> 
> 
> A clear case of falling for text-book propaganda.  Well, maybe you always go to
> the same gas station, but the people I know are more rational - nobody gives a
> damn what the gas station is, people I know look at the price, the octane
> rating, 

Exactly, an organized market and a standardized product.

> whether it contains ethanol and maybe if it's pay-at-the-pump or if
> there is a convenience store attached.  But I have never heard anyone say, "I
> must go to Mobil, they have this kick-ass detergent technology", or "I must use
> my quickpass key", or 
> 
> "I must go to BP b/c they *really* care about the environment", or whatever
> other nonsense you see advertised.
> 
You really don't seem to understand this do you.

Ideal competition requires: (1) a large number of suppliers, (2) a 
standardized product, and (3) an organized market.

Restaurants don't have their prices posted on signs out front that are 
large enough to read while you drive by (the market isn't as organized as 
retail gasoline).  And, they don't have a standardized product.

> 
>>>In any event, oil companies should make profit margins consistent with a
>>> competitive commodity business (i.e., marginal profits, as happens with
>>> unsubsidized corn farmers), but they do not.
>>
>>Is this Neo-Com thinking?  Saying what profit they should make.  Corn
>>farming is not a natural resource recovery industry.  There is a short
>>supply of Oil and in the US there is a surplus of corn production.
> 
> 
> I think even your right-wing-propaganda-economics-book bible says that profits
> approach some minimal level under conditions of market competition, no? 
> Otherwise one vendor keeps lowering the cost to capture additional market
> share?  Isn't that the theory?
> 
Yes.  Currently there is a shortage of gasoline refining capacity in the 
US.  Theory in that case states that suppliers will be able to make extra 
profit (not because of their actions but because of the market).  As a 
result of this, others will enter the industry.  Guess what, somebody is 
going to build a refinery in Arizona.
> 
>>>In most sectors, the industrialized world is basically oligarchy, and
>>>using unrealistic, moral competitive models to understand them is not
>>>just fruitless but asinine.  The only way to understand oligarchies is
>>>to study them in particular.  The smaller the group of "competitors"
>>>becomes, the easier it is to coordinate and the more stupid (for them)
>>>it is to compete.  Imagine if only you and your brother sold oil in your
>>> state.  Would you really engage in competition, or would you find some
>>> subtle way to maximize your combined profits (imagine also you had no
>>>morals about "being fair" to the consumer)?
>>>
>>
>>Again you make the classic false assumption that others appear to make with
>>the gasoline market.  If the government ordered gasoline prices reduced
>>tomorrow, what would happen.  Oh I forgot we already tried that once and we
>>all know what happened.
> 
> 
> That would happen even if the industry is a monopoly.  A monopoly provides
> greater profits and power (political, economic, social, etc.), not omnipotence.
> 
> 
>>Do you think that there is more gasoline sitting
>>around that could be sold?  To make this clear, if Oil companies cut the
>>price of gasoline, where will they get the additional gasoline to sell to
>>meet the increased quantity demanded.
> 
> 
> I guess in a round-about way, you are agreeing that the oil companies don't
> compete.
> 
> But we weren't talking about supply, we were talking about price.  If they
> lowered the price it does not mean they could sell more product, it means only
> that the consumer would pay less for the same product.  

STUPID STUPID STUPID.

If they lowered the price, the quantity purchased would increase and there 
would be a shortage.  Or do you think that the law of supply and demand is 
Right wing propaganda too.  I have found that even Leftists believe in it, 
it is just that they fail to understand that it doesn't apply in the long run.

> If somehow this resulted
> in too much fuel consumption, personally I would rather the extra money to
> regulate usage would go to the government to reduce my income taxes
> (particularly to pay for roads, IMO a gasoline tax should pay for those as it
> requires those who drive more to pay more) or national debt, rather than to the
> oil companies.
> 
> [ ... ]
>  
> 
>>So, you admit that you believe what the Left says about economics and you
>>say that classical economic theory is Rightist propaganda and you still
>>have the nerve to say that you are not a Leftist.  That is simply incredible.
> 
> 
> Hard as it is for simpletons to realize, the "Leftist" position is sometimes
> correct and the "Rightist" position is sometimes correct.  To me they are
> correct b/c they are based on facts, not b/c they are "Leftist" or "Rightist".
> 
> The biggest difference is that generally the "Rightist" position is more
> superficial and stupid than the "Leftist" one; that is why most intellectuals
> are "Leftist".  When you see the next dimension you abandon both sets of
> ideologies but intersect with the "Leftist"/"Rightist" virtual reality at
> various points, particularly since the sheeple try to force you to wear one
> label or the other.
> 
> The problem with theory is that it obfuscates the facts.  The facts of the
> American oil industry are fairly well-known (at least, pre-1920) and do not fit
> any general idealized pattern.  Trying to force one on it is a sign of being
> brainwashed, not of being "rightist" or "leftist".
> 
> As to OPEC, the development of the regimes in those countries and their
> respective oil industries in particular is also not a case of plug-and-play some
> idealized textbook theory about free social development or class warfare.  It
> has much more to do with empire, imperialism, war and conquest than costs of
> production, indifference curves, class consciousness or supply and demand.
> 
> Tune in to reality.

Little point in trying to respond to this.

What it comes down to is that classical conservatives believe what is 
written in standard economics texts (just as we believe what is written 
thermodynamics and mathematics texts) and Leftists don't.  I understand 
that, you don't appear to.

--
JRT

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