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A Note on Export Subsidies, Predation, and the Likelihood of Harm from Genuine Monopoly Power

Saturday, November 26, 2016 7:14
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(Don Boudreaux)


There are many reasons to ignore allegations that private firms use so-called “predatory pricing” today as a means of monopolizing markets tomorrow – not the least of which is that there is no credible historical evidence of any such scheme ever actually being used to achieve genuine monopoly power for an alleged practitioner.  (By “genuine monopoly power” I mean the power of a firm to make consumers worse off than consumers were before the alleged predatory-pricing scheme resulted in the alleged monopoly power.)

If the firm has privileged access to government funds, the analysis of predation differs from the analysis when the firm has no such access.

Sometimes allegations of the “dumping” of imports are couched as allegations of predatory pricing by foreign firms that are subsidized by foreign governments – that is, by foreign firms that have privileged access to government funds.  Even with such subsidies, however, there are many reasons to doubt that such below-cost pricing (if below-cost pricing it truly be) poses such a danger to consumers of those subsidized-firms’ exports as to justify government retaliation in the home market against these import prices that are allegedly too low.  Here is one such reason for doubt that I don’t recall ever seeing mentioned (although it’s quite likely that such a mention has been made and I am simply unaware of it): Because the goal of governments that subsidize their countries’ exporters is not to maximize those companies profits over the long run but, rather, to increase as much as possible their countries’ exports, any successful monopolization of foreign markets would cause the successful, subsidized exporting firms to reduce their exports from pre-monopoly levels.

Given the distressing refusal of nearly all governments worldwide to abandon their commitment to mercantilist policies – that is, to seek to increase as much as possible the amounts that their people produce  for consumption by foreigners, and to decrease as much as possible the amounts that their people receive from foreigners in return – it’s politically unrealistic suppose that the goal of foreign government’s that subsidize their countries’ exports is to achieve monopoly power in the subsidized industries.  Moreover, even if such subsidies happen to result in monopoly power for such subsidized firms, it’s unrealistic to believe that the subsidizing governments would not then take steps to encourage the monopolist exporters under their jurisdiction to continue to artificially increase the amounts that they export.  That is, even if foreign subsidization of exporters happened to result in those exporters enjoying genuine monopoly power in their respective industries, it’s unlikely that consumers of those exports would suffer as much as they would suffer were that monopoly power not the result of mercantilist policies.


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