The Privatization of Roads and Highways - Ludwig von Mises Institute

Free-Market Transportation: Denationalizing the Roads 33
the competition of its rivals and the greater the number of fairly
close substitutes for its product, the more elastic will a firm’s
average revenue curve be. As usual, it is possible to be precise
about limiting cases. One limiting case will occur when there
are so many competitors producing such close substitutes [the
perfectly competitive model] that the demand for the product
of each individual firm is infinitely elastic and its average revenue
curve is a horizontal straight line. This will mean that the
firm can sell as much of its product as it wishes at the ruling
market price. If the firm raises its price, then, owing to the ease
with which the same, or a very similar, product can be bought
from competitors, it will lose all its customers. If the firm were
to lower its price, it would be swamped by orders from customers
wishing to take advantage of its price reduction. The
demand—and the elasticity of demand—for its product would
be infinite. 22
Under these conditions, competition in the usual sense of
opposition, contention, rivalry, etc., would be completely lacking.
Where is the need to attract the customers of other firms to oneself
if each so-called “competitor” can “sell as much of its product
as it wishes at the ruling market price?” Why go out and compete
if one is guaranteed all the customers one could possibly
want? If “competition” is supposed to indicate rivalrous behavior,
one would think that “perfect competition” would denote a
sort of super-contentiousness. Instead, through dint of misleading
definition, it means the very opposite: a highly passive existence,
where firms do not have to go out and actively seek customers.
Again, we can see that rejecting the possibility of perfect competition
for a roads industry is by no means equivalent to conceding
that there can be no rivalrous competition between the
different road owners. Paradoxically, only if perfect competition
22 Alfred W. Stonier and Douglas C. Hague, A Textbook of Economic Theory,
3rd ed. (New York: John Wiley and Sons, 1964), p. 104.