Freedom, Society, and State - Ludwig von Mises Institute

endeavoring to gain access to the lucrative profits,
and the expanded supply would force the price back
down. But if a monopolist is confronted by new competitors,
why can't he either reduce his prices again in
order to drive the newcomers out of business, or buy up
his rivals' plants? As for the former, even if a
smaller firm is driven into bankruptcy, its physical
plant remains intact and may therefore be bought by new
compet i tors at extremely low prices. This means that
these new compet i tors would then be in a position to
s eve reI y damage the w0 u 1 d - be mo nopol i s tand ke e p the
price low for a considerable time. Moreover, a policy
o f bUy i n g 0 uta I I compet itorsis seen as i nor dinate 1y
expens ive. A small efficient firm could demand a high
price for its plant as the price for selling its
ass e t s. But if the monopol is t would then try to recoup
his losses after such a purchase by raising prices, he
would only encourage the entrace of new competitors,
thus necess i tat ing the "buying out" process allover
again.
The foregoing means that, provided they are voluntary,
successful mergers, price-fixing agreements or
cartelizations do not harm the consumer. On the contrary,
like all voluntary transactions, they help to
find the most value-productive point for the allocation
of resources. Therefore, they help to increase the satisfaction
of all members of society. Assume, for example,
that firms A, Band C find that by merging they
can increase their profits byrest ricting prod uc t ion .
The "restriction" means that some factors of production
w i I I now b e c om e i dIe • But solongas therea r e no i n ­
stitutional, i.e., governmental, impediments to their
use, resources cannot long remain idle. Their employment
in other areas wi 11 expand production in those
areas. If so, production has not been restricted at
all. What occurred was a shifting of factors from one
area to another. But the merger would take place only
if the participants believed that it would increase
their profits. Since the market correlates profits and
consumer satisfaction, the merger will, provided the
.expectat ions of the participants are correct, actually
increase consumer satisfaction. That is, while physical
output will have remained about the same, the value
of that output, from the standpoint of the consumers,
has been augmented.
Libertarians further argue that the larger the
firm in relation to the market, the more limited it is
i nit s a b iIi t y toe a 1cuI ate and the ref 0 ret he mo r e
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