Sure we can allege that anyone with market power will drive down prices to kill the competition then raise them to exploit monopoly. The problem with this being that the strategy doesn’t work. As we’re about to prove yet again:
The background now is that oil demand has fallen as a result of the coronavirus. OPEC wants to reduce output to keep prices up, but Russia doesn’t want to play that game. Russia would like to crush the fracking industry in the United States. Low prices will do that — and yes, the Permian Basin is going to see some financial blood from current prices. Saudi Arabia then punishes Russia for stepping out of the cartel by lowering prices. There will be much blood in the Permian. This might even kill some of the fracking companies.
But here’s the problem — or the two problems. There’s still that potential competition there. The technology of fracking will still exist, America will still be an industrial powerhouse, and the rocks aren’t going anywhere. So Saudi and Russia never will be able to exploit high prices as a result — fracking will just reappear when prices rise. And even if it doesn’t, they’ll not be able to recoup the cost of what they’re doing.
As Craig Pirrong, an expert on these commodity markets, points out, the current price cuts are costing those two countries some $500 million a day. Even in politics and government, the equivalent of losing one Michael Bloomberg campaign each and every 24 hours is real money. Do this for three months, and that’s $50 billion or so. For a year, it’s $200 billion — that is vastly beyond what can be recouped by future higher prices.
Predatory pricing just doesn’t work. It’s entirely possible to hurt, harm, or even kill the current competition, as certain Texans are about to find out. But it’s not possible to benefit from having done so — the costs of the tactic are too high for it to be profitable.
As it doesn’t work it’s not something we’ve got to strain to root out, is it? Thus dies an awful lot of complaints about “unfair” competition.