roberts@CMR.ICST.NBS.GOV (John Roberts) (04/01/89)
>From: <GILL%QUCDNAST.BITNET@VMA.CC.CMU.EDU> >John Roberts writes: >> - Economies of scale: The ability to maintain a high volume of launches >> and to accelerate the learning curve (and possibly to discourage the >> competition) can make it economically attractive to sell products or >> services for less than the actual cost. This has been a favorite >> Japanese strategy for years. >Yes, it's called competition. The Japanese are good at it. This is usually >considered to be something good, unless Americans are on the wrong end of >the deal - then it is labeled unfair trading practices. The actual situation is a lot more complicated than this. When a company introduces a product into a market for which competing products already exist, it must strive for market share (customer base) and sufficient volume of business to assure a rapid learning curve and reasonable economies of scale. Toward this purpose, the company is often willing to sell the product for an artificially low price with reference to its current production costs, accepting limited profits or even losses until it has established a market position. At this point prices are set at a more reasonable level. (The price may not actually go up, since production costs may have gone down.) As long as no fraud is involved and the company is merely seeking to become one competitor among many, this is considered proper business practice. If, however, a company is trying to drive its competitors out of major contention altogether, so it can control the market, this is considered restraint of trade, and is illegal in the US. Note that it is not necessary to drive the competitors entirely out of business. If their sales volume can be reduced to the point that they no longer enjoy economies of scale, they may not have sufficient funds to operate at a loss in order to restore volume, or they may become convinced that they can not make a profit on the product in question, and give it up. A clever company introducing an entirely new product will lower the price as its production costs drop, making it difficult for a new company to enter the market with a low sales volume. (The typical US corporate approach is to charge what the market will bear until a competitor comes along with lower prices and takes away most or all of the business.) This technique has been applied throughout modern history. After the American Revolution, England tried to discourage the development of US industry by making manufactured articles available at low prices. Rockefeller of Standard Oil used to cut prices in local areas to kill off small competitors, then raise the prices again. The Japanese semiconductor manufacturers allegedly dropped $4 billion by underpricing DRAM chips in an effort to knock out all competitors in the DRAM market. > The general comments sound like typical American geocentrism to me. Why >must the rest of the world pay the inflated prices that Americans, with their >artificially stimulated (by the military-industrial complex) economy, are >willing to pay? Cheap labour exists all over the world, especially behind >the Iron Curtain, and it has little to nothing to do State subsidies. Americans are not anxious to lower American wages to the levels found elsewhere in the world, though the current trade policy leaves things headed in this direction. I was not talking about the international market, just the domestic market. The US should not hope to do business abroad unless its prices are competitive. A very common practice in Japan is for a new business to be protected within the country by steep import tariffs, until it is large enough to compete in other countries. Because of its low volume and inexperience, the US private launch industry must be considered a new business. If competing nations employ this technique, why shouldn't the US do the same? >...If you can't compete on the world market place, >then get out or adjust your prices. Just don't use a bludgeon on someone >else just because you don't like the way that they are running their >business! Mafia tactics rule in the US Government's economic policies. Not as much as in many other parts of the world. If you will reread the original posting, I was not accusing the Soviets of a conspiracy. I was stating that they have several incentives to employ economically attractive business practices which would cause us to have a distorted view of the overall efficiency of their program. Many people say that the Soviet space program is much better than ours, so we should do everything the way they do. I was pointing out that we do not really have a complete picture of their space program, since they choose to keep their costs secret. That does not in any way imply that we could not benefit by copying *some* of what they have done. > -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- >Arnold Gill | If you don't complain to those who | >Queen's University at Kingston | implemented the problem, you have | >gill @ qucdnast.bitnet | no right to complain at all ! | > -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- John Roberts roberts@cmr.icst.nbs.gov
henry@utzoo.uucp (Henry Spencer) (04/02/89)
In article <8903311804.AA13068@cmr.icst.nbs.gov> roberts@CMR.ICST.NBS.GOV (John Roberts) writes: >If, however, a company is trying to drive its competitors out of major >contention altogether, so it can control the market, this is considered >restraint of trade, and is illegal in the US. Note that it is not necessary >to drive the competitors entirely out of business. If their sales volume >can be reduced to the point that they no longer enjoy economies of scale, >they may not have sufficient funds to operate at a loss in order to restore >volume, or they may become convinced that they can not make a profit on the >product in question, and give it up... Restraint of trade is illegal in the US only when it's not the government doing it. Consider what the shuttle almost did to expendable launchers. Consider, for that matter, what the US has just done to China's sales prospects for Long March. One hopes that the Chinese will not give up on Long March, despite the (so far) successful US attempts at restraint of trade. -- Welcome to Mars! Your | Henry Spencer at U of Toronto Zoology passport and visa, comrade? | uunet!attcan!utzoo!henry henry@zoo.toronto.edu