Dr. Folsom spends a considerable amount of time talking about two men in the 1800’s who ran steamship businesses with the first one, Collins, being the original American steamship owner who year after year asked congress for a subsidy equaling the previous year plus one hundred thousand dollars. He did this because he kept providing a service that kept the economic development of the United States on par or ahead of the British economic development. However, Vanderbilt saw what Collins was doing and decided to offer to do the same job for half the price and argued as such to congress. Congress chose to go with Collins with their official reason being that they had no faith that Vanderbilt could do the same job for half the price and they would instead lose their investment.* Dr. Folsom kind of just goes with this idea and doesn’t really raise many theories or thoughts about ulterior motives that congress could have had in accepting the more expensive offer. For example they may have been getting personal kickbacks from Collins which would stop if they refused to give him the subsidy or they could own part of the company or own some shares which would drop if there was competition. I think this is a part of the story that must be at least thought of as it can cause even the strongest arguments against the choice to fall on deaf ears due to personal gain.*
Dr. Folsom explains a strategy that Vanderbilt came up with in response to the ad campaign that was heavily pushed by Collins in an attempt to get himself ahead and hopefully turn a profit. The campaign was that Collins was faster so he ordered his ship captains to be faster than any other ship. Thus Vanderbilt came up with a plan for his captains to power at full or high speed when leaving port to cause Collins to sacrifice resources to stay ahead. Then Vanderbilts ships would slow down and resume fuel efficient travel while Collins continued to waste fuel for unneeded speed. This is a strategy that has been employed in some way or fashion across the United States for centuries. Repeatedly we have seen companies use deals and promotions where they may take a financial hit in order to get customers in the door and prevent the competition from getting a stranglehold on the market. A good example of this is The Edmond Sun. This is a newspaper company which services Edmond and the surrounding areas with newspapers and online articles. They ran a promotion over a decade ago where they sold their subscription for 50 cents and you would be able to pay this amount forever as long as you didn’t cancel your subscription. I know about this because my father got a subscription back then and still pays only 50 cents a month for coupons rather than the 10 dollars that is available now. This cost the company money in lost revenue as they barely make any profit off the subscription due to delivery costs. However this promotion ran their competition out of business which allowed them to raise prices back up without any other option for consumers. Other companies have done this in recent years. Large companies will drop prices so low that they make either no or negative profit for a period of time that causes the competition to run out of funds due to lack of customers before returning to normal prices.
A partial solution to the problem of big businesses cutting prices to lock new startups out of the market is to provide subsidies to the smaller companies to keep them afloat for a few years until the large company runs out of funds to fall back on. Another more long term option is to lock the larger company out of any tax write offs or future subsidies so that if they fall on hard times they have no support from the federal government. This would encourage companies to heavily think about damaging smaller companies as it would remove their only safety net if hard times fall on them, like a pandemic that forced the government to give business loans to struggling companies. A third potential but also risky option is to provide legal penalties to companies that try to unfairly monopolize a market. What I mean by this being risky is that you would have to carefully watch and define what ‘unfairly’ means as the company may have legitimate reasons for actions that just happen to hurt competition. For example a company may be failing and nearing bankruptcy causing them to massively cut costs and prices in order to save themselves. This would hurt competition but is also not unfair as the company has no other choice if it doesn’t want to go under. A tentative option could be to punish companies that rapidly change their prices by extreme amounts, i.e. within a few weeks/months, when no defect / improvement has been discovered to make the item or service more or less valuable.
