From: parvin1@husc11.harvard.edu (Douglas Parvin)
Newsgroups: alt.politics.libertarian
Subject: Re: Open letter to the libertarian right
Date: 14 Oct 92 01:34:33 GMT

bomgard@moose.cs.indiana.edu (Tim Bomgardner) writes:

>In article <parvin1.718922629@husc11> parvin1@husc11.harvard.edu (Douglas Parvin) writes:
> 

>}10 +
>}   |\
>} 8 + \
>}   |  \
>} 6 +---A
>}   |   |\
>} 4 +   | \
>}   |   |  \
>} 2 +---|---B-- cost of manufacture
>}   |   |   |\
>}   |   |   |\
>} 0 +-+-+-+-+-+
>}   0 2 4 6 8 10

>} [discussion of profit when startup company is subsidized.  Firm A is the
>   "established player", Firm B the startup.  Point A is what Firm A is
>   currently charging, Point B is the "break even" point.  At least,
>   that's my interpretation.]

>}No; these are the marginal costs that you are looking at.  It's quite possible
>}that there is no profit to be made between A and B when the start-up costs
>}are taken into account.  Firm A is not concerned with these costs.  Any
>}firm wishing to compete is.  Your diagram ignores the cost of entry.

>IF I understand what you're saying, then this is one of the most absurd
>economic statements I've ever heard.  Firm A not concerned??  Au contraire.
>Firm A has already paid the startup costs and is now attempting to
>amortize that expense in the face of advice from economic wunderkinds

I was very careful to say that the monopoly had to be "well established".
What this translates to, in practical terms, is that its marginal costs
are truly marginal costs.  That is, any "amortized" start-up costs have
either been paid off by years of high profit, 
or are so negligible at this point to be left out

>like you who've decided that "the people" have a "right" to purchase
>goods and services in a market twisted into whatever you've abritrarily
>determined is "fair and competitive."

Don't you think it's a bit misleading to quote terms I've never used?
In earlier posts, I defined exactly what benefits to consumers I was looking
at, and how these benefits compared favorably to the costs of the start-up.
So I fail to understand how I've been arbitrary.  "Fair" is a subjective
term which I'll leave to the many categorical moralists.  Same goes for
the word "right".  I don't invoke these concepts to illustrate my example.
What I've shown is that it's at least theoretically possible to increase
consumer net wealth by an amount greater than the costs of subsidization.

I'll leave it as an exercise to the reader to determine whether this fits
in with your personal brand of morality.

>My brother founded and operated a business in the state of Indiana, but
>the state government decided that there was insufficient competition, so
>it subsidized the startup of other companies.  Since the other companies
>had no bank loans or other startup costs to amortize, they easily underbid
>my brother and quickly put him out of business.  I realize this doesn't
>prove anything, but it's interesting to note that the startups are now
>charging more than my brother did. 

I'm very sorry this happened.  If the facts are as you described them, the
state of Indiana really goofed.  You were certainly not an established
monopoly making a relatively enormous profit margin, so it appears that this
policy screwed both your family and the consumers, who paid taxes to
guarantee higher prices.  This is subsidization gone astray...

>Tim Bomgardner
-- 
===========================================================================
Douglas Parvin
parvin1@husc.harvard.edu