[conspire] HP Melt Down

[Edward Cherlin]

On Thu, Aug 25, 2011 at 21:26, Ruben Safir <ruben at mrbrklyn.com> wrote:
>> One of the most important definitions of competition given by
>> economists includes as an essential component getting out of
>> unprofitable markets, and leaving them or selling that part of the
>> business to those who develop a comparative advantage. As in
>> IBM/Lenovo, and presumably HP and its so-far-nonexistent buyer (oops).
>> No zombie corporations, as in Japan, no other forms of
>> anti-competitive subsidy, etc.
>
> The unit made a 7% profit over the last year which in most businesses is
> a very considerable profit.

This turns out not to be the case.

In fact, the Dow Jones Industrial Average shows a long-term 11%
growth. Similarly, the Vanguard S&P 500 Index Fund shows average
returns of 10.55% since 1976. No "rational" investor will hold on to
any stock or any line of business with long-term prospects
substantially below that.

> What does your standard super market make, or GM?

Many people are confused by the fact that grocery chains aŕe happy for
you to know that they make about 1% profit on sales, and try not to
let on when they are making 10-12% on equity. GM nearly went bankrupt
three years ago, and is not a good example for this discussion.

> From how i can see it, computer businesses are very much like
> Pharmacy companies.  They spend more time trying to avoid competition,
> and refusing to produce anything but the highest margins, then get
> product out.

Exactly the opposite. Pharma has some of the fattest profit margins in
the world, and computers, apart from Apple, some of the thinnest. HP's
best manufactured product line from a strictly financial point of view
is inkjet cartridges.

The attempt to game the market in order to get above-market returns
requires us to get into other parts of the genuine economic definition
of competition. You are correct that almost all megacorporate business
is anticompetitive, and that its management collectively agrees that
competition is for chumps. It is sufficient to note that the returns
on investment in a perfectly competitive market are all the same,
because investment flows into any higher-paying opportunity,
specifically into new firms with superior technology or locations in
areas with comparative advantages. The ability to exclude other firms
and workers from a market, through patents, government licensing,
immigration law, other restrictions imposed by governments, or
criminal malfeasance is another defining characteristic of a
non-competitive market.

But I try to deal with one problem at a time. It is reasonable for a
firm that can make high profits in one area and not in another to get
out of the other. That is an aspect of perfect competition (though
only one) that also holds in the presence of large imperfections in
competition. Other aspects include perfect information, and access by
all (Any market you cannot get to is not Free, again by definition.)

We can discuss the economic definition of competition, or the
anti-competitive behavior of the Masters of Mankind (Adam
Smith)/Malefactors of Great Wealth (Teddy Roosevelt)/Economic
Royalists (FDR)/Masters of the Universe (referring to a Sunday morning
children's cartoon of three decades ago; adopted for themselves by
Wall Street financial typhoons and industrial maggots, as renamed by
the Smothers Brothers ^_^), but preferably not both at the same time.
The basic definition can be found at

http://en.wikipedia.org/wiki/Perfect_competition

along with a variety of self-serving criticisms that completely miss
the point of the idea.

Don't bother explaining to me that Perfect Competition does not hold
in the real world. Nor that we do not have enough Pigovian taxes on
externalities, nor that any other well-known market failure either
happens in reality or is alleged to be impossible in Market
Fundamentalism. Economics is not a science, in much the way that
astronomy was not a science before the
Copernicus-Galileo-Kepler-Newton tower of giants took a hand in it,
when planetary orbits were a farrago of conflicting hypotheses, none
supported by adequate evidence, and all seriously inaccurate,
including numerous competing schools of astrology. Given its social
and political components, I conjecture that it is possible that
economics cannot be a science, but I would be willing to be proven
wrong.

> Ruben


-- 
Edward Mokurai (默雷/धर्ममेघशब्दगर्ज/دھرممیگھشبدگر ج) Cherlin
Silent Thunder is my name, and Children are my nation.
The Cosmos is my dwelling place, the Truth my destination.
http://wiki.sugarlabs.org/go/Replacing_Textbooks