The Freeman 1972 - The Ludwig von Mises Institute

1972 ARE WE MARXIANS NOW? 457him from exploiting the situation.Potential competition exists inall fields of production and commercewhich everyone is legallyfree to enter. Most corporationsare searching continuously fornew lines and items of production.They are eager to invadeany field in which business earningsare unusually high. The invasionof another field by a corporationmay involve no morethan a single retooling or reorganizationthat is achieved in afew weeks or months. Or,brandnew facilities may be employedfor an invasion. Thus, one producer,whether he is a monopolist,duopolist, or a competitor amongmany, always faces the potentialcompetition of all other producers.But even if American enterprisesfailed tq compete with eachother and potential competitionfailed to exert a restraining influenceon monopolists - which isa most unrealistic assumption ­the people would escape monopolisticprices through recourse tosubstitutes. .In many fields thecompetition of substitutes is moreimportant than that of competingenterprises. In· the manufactureof clothing, for instance, adozen different materials vie witheach other for the consumer's dollar.The .monopolist of anyonematerial is powerless because monopolisticpricing would induceconsumers to switch immediatelyto other materials. The manufacturersof suspenders compete notonly with each other and withpotential competitors, but alsowith the producers of belts. Inthe transportation industry therailroads compete with trucks,cars, airplanes, pipelines, andships.Elasticity of DemandThe existence of substitutesmakes for demand elasticitywhich, in turn, makes monopolisticpricing unprofitable; for higherproduct prices would greatly curtailproduct demand, and thussales and income of the monopolist.Therefore, he again must actas if he were a competitor amongmany.All producers, in fact, competewith all other producers for theconsumer's dollars. The manufacturerof television sets competeswith the manufacturer of freezersand refrigerators. If the monopolist.of one commodity - say, televisionsets - should raise his price,the consumer may forego the purchaseof a new set and buy insteada second-hand set or a refrigerator.We consumers do notallocate our income to the satisfactionof categories of wants butto that of specific wants yieldingthe greatest net addition to ourwell-being. This addition, in turn,