We’re finally watching Breaking Bad. Halfway through the second season, Walt reveals the folk economics he holds dear; folk economics is the often nonsensical belief system that substitutes for economics in the untrained.
In this case, Walt plans to pursue an old belief that remains popular today, even though economists have shown that it pretty much never works out.
Here’s the plan: erstwhile normal guy and ersatz drug kingpin Walt, after vicariously eliminating three layers of competition, has a monopoly — so now his plan is to raise the price.
This works in the short-run, but not in the long-run. Folk economic beliefs miss that long-run consequence.
The reason is that “vicariously eliminating two layers of competition” by liquidation is a form of raising costs and reducing profitability for others. What keeps out new competition is the signal that potential future profits are low.
But, Walt is going to intentionally muddy this by raising prices, signaling higher potential profits and encouraging new entrants into the market.
This is going to go badly. Of course, not having it work out might be a story arc for the show, so don’t spoil it for me.