Quote:
Originally Posted by Urbane Guerrilla
If there's a real difference in principle between a five-dollar lemonade stand and a five billion dollar auto company, I've yet to hear of it. What effect could scale have upon principles?
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I almost put this in my first post, but I aim for shorter posts. They're more likely to get read.
If we keep things "in principle" or "in theory" then we are at risk of
considering a spherical cow. That is, we have abstracted so far from reality that our findings are of little use. A lot of economic theory does this.
Is there a difference in principle between a lemonade stand and a car company? Well, true, much the same principles apply: supply, demand, costs, pricing, margin, return customers, etc etc.
In reality, if a lemonade stand is selling poor quality lemonade, any ambitious kid with $5 can start a competitor. Standard competition applies.
If a car company is selling poor quality cars, what happens? Start-up competitors? Hardly ever. People buy other cars. The company struggles, and either reforms, folds or gets taken over. Option A is status quo, B and C tend towards reduced competition.
The problem in a nutshell: in theory, there is no difference between theory and practice, but in practice, there often is.
It's an empirical question. Does a free market enhance competition? With respect to lemonade stands, probably yes. With respect to car companies, probably no. Look at car companies today. It is far too complicated for me to trace out, but most brands have been taken over by other companies. How many car companies does the US have today?