Trade and the Impending Monopolization of the Housing Market

Day 230, 13:02 • Published in Canada Canada • by dah81

Here is an economist's take on the discussion pertaining to kommie's article [a url=http://www.erepublik.com/article-393771.html]here[/a] .
The political complaints are that the eCanadian government should regulate kommie's industries from undercutting local markets and increasing the risk of monopolization. Suggestions include placing minimum pricing restrictions so that our markets become government controlled, or subsidizing small companies so they can compete with kommie. Both of these solutions are an economic nightmare. If prices are government controlled we will surely fall the way of the real life Soviet Union. We can expect shortages of products we need while there are abundances of overpriced goods which no one wants. This is due to the fact that prices act as a signal in market economies and when that signal is skewed, consequences will follow. The subsidy idea is extremely inefficient as it allows small time players to rely on a subsidy to hold onto a company which is not productive. The best case scenario is that already failing companies are kept afloat by government money that could be better spent elsewhere. The worst case scenario is that players who should be workers decide it is worth their while to become a GM and live off the subsidy. Labour shortages could follow and the industry in question would never really become more productive. The only proposed solution I agree with is the opening of trade.

Prices of domestically produced housing in eCanada are approximately $100CAD for a Q1 and $185CAD for a Q3.
Let me state the assumptions I am about to make. Please keep in mind all the numbers are estimates made based on trends within the last month.
Assume a Q1 housing company average worker has a skill of 2.00, a wellness of 70, and a presence of 90%.
Assume a Q3 housing company average worker has a skill of 4.5, a wellness of 100 (these workers have higher wellness due to the ability to afford better food and housing), and a presence of 90%.
Assume both company's employ an average of 10 workers each.
According to the eRepublik productivity formula found [a url=http://wiki.erepublik.com/index.php/Formulas]here[/a].
The Q1 company will require 74 clicks of the "work" button by it's employees to complete one Q1 house.
the Q3 company will require 40 clicks of the "work" button by it's employees to complete one Q3 house.
If we consider the price of a domestically produced Q1 house, that means that the average worker in the Q1 company can be paid $1.35CAD/day for the company to break even.
The average worker in the Q3 company can be paid $4.63CAD/day for the company to break even.
Of course the true wages that are being paid currently are inflated due to kommie taking a loss in his bid to monopolize the market.

Now let's bring trade into the picture. I based my comparison on Greece since I had a recent discussion with a player from there discussing the current housing market.
The housing market in Greece currently has Q1 houses listed for the equivalent of $2750CAD, and there are no houses that are higher than Q1 listed since the people cannot afford more than that. If our local, small Q1 housing companies specialize in exporting they could charge that amount and then could bring wages up from $1.35CAD/day to $37.16CAD/day. Thats an increase of 2752.6% !!!
While our local Q3 company could only sell their Q3 houses in Greece for the same price because the people there cannot afford more than that for a house. Their wages would increase from $4.63CAD/day to $68.75CAD/day. That is an increase of only 1484.9%. This could lead to the Q1 companies having the export advantage while the Q3 companies have the domestic advantage. An equilibrium could be reached where kommie no longer has to take a loss to try and monopolize the domestic housing market. This would cause local housing prices to increase to their true value and wages to decrease to their true value. The benefit would be that kommie would no longer have to lose money and small businesses would have a chance in the market.

There is the issue of how to get this all to happen. It would take a catalyst from the government in small business loans so that small businesses could get their export licenses. It would also need the eCanadian government to lobby the foreign (Greek in this example) government to reduce or eliminate import taxes.
We can have a free market economy where every player has his or her place!