Quick econ question

If a firm produces at a lower cost than everybody else, does the firm become a monopoly in the long run?

Once a monopoly, the prices skyrocket and they try to lock you in at so many different levels. That's one reason why I dislike society as it stands. No freedom, you have to be enslaved to their model. Ironically, that's why everybody should use Linux... :evilgrin: Not as much being locked in to one product, but there's no cooperation.

A *real* operating system. :-)

:toast:

If they're still producing things that are out of most people's purchasing range, their stock will go unsold.

Other companies can temporarily undercut their prices and try to drive them out of business that way.

Paying substandard wages leads to employee dissatisfaction, high turnover, and monkeywrenching. All of these are expensive, and will eventually cause the company to raise prices.

The quality of their merchandise suffers from cost-cutting, and they begin to get a lousy reputation.

We've seen all these factors at work in the car industry in the past few decades. That's why we have more than one company, still.

and seldom do the twain meet. Economic theory would say that if a firm can produce at lower marginal cost than everybody else AND such production is as a result of innovation AND that they can somehow prevent the diffusion of such innovation(s) to other companies in perpetuity, then sure, this will lead to monopoly, all other things being equal (or as they say in Econland, ceteris paribus). Uhhh, I don't think it takes terribly keen insight to figure that the odds of both AND clauses obtaining in real life are not overwhelmingly great. As pointed out by other posters, most firms try to hold down costs by using low-cost or slave labor overseas. In the long run, hopefully, they will get bitten on the ass by this approach.

the cost of a competitor reentering the market is prohibitive or the company with the monopoly can use government to prevent competition.

It's a fallacy to presume that cost is the only factor in determining purchase appeal.

Monopolists do a lot more than just cut prices, although that's one thing in the arsenal.

There are other things you have to do to get a monopoly. You have to deny everyone else access to markets, and to materials, nd there are lots of ways of doing that.

Rockefeller had it down. He really only sold kerosene for most of his life, but did whatever he could to block every other producer from selling theirs. He would buy a railroad because another producer used it to get their product to market. He'd take over local distribution ot guarantee only his product would be in an area. Then, when your company was going belly up, he'd buy it and consolidate it with his own.

Now, Gates, Diller, Ellison, and a bunch of others don't have the legal freedom to pull all of John D's dirty tricks, but they're still locking up markets, and charging plenty.

And that's the FIRST order of business for a corporation.