[AR] Re: Rocket Labs
- From: Robert Steinke <robert.steinke@xxxxxxxxx>
- To: arocket@xxxxxxxxxxxxx
- Date: Thu, 17 Sep 2015 16:50:02 -0600
On Wed, Sep 16, 2015 at 10:16 PM, David Weinshenker <daze39@xxxxxxxxxxxxx>
wrote:
Bill Claybaugh wrote:
Why assume evil when nature is a sufficient explanation?
Airlines are both commodity businesses--they have no pricing
power--and service businesses--they have inherently high
costs--so they naturally, through competition, fall to no
profit pricing. Space transportation is no different.
So what you're saying is that transportation (space, air, or
otherwise) - as a business - is a relatively pure example of
the sort of "flat and crowded" market in which "racing to the
bottom" may be expected as an emergent behavior?
-dave w
That's exactly the issue. In any flat and crowded market the existing
players are driven to price at marginal cost. Neoclassical economic theory
deals with this through a sleight-of-hand where they say, "Marginal cost
must in all circumstances be greater than average cost so a firm pricing at
marginal cost will be profitable." But this is just a sleight-of-hand.
The theory that produces that conclusion requires assumptions that aren't
true. (This is really off-topic so email me off-list if you want
details). It's entirely possible for marginal cost to be equal to or even
less than average cost leading to zero- or negative-profit industries.
And of course, the emergent behavior in that situation is for firms to go
bankrupt until it starts violating the beloved assumption of neoclassical
economic theory: that markets are always flat and crowded.
Bob
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