Where the article belongs to that class in which the law of increasing returns is strongly operative--_i.e._, where great economies in expenses of production attend a larger scale of production, this increase of supply and fall of prices may continue with no assignable limit. On the other hand, where there is little elasticity of demand, where an increase of supply can be taken off only at a considerable fall of price, it will probably pay a monopolist to restrict production and sell a small number of articles at a high price. It is this motive which often induces the destruction of tons of fish and fruit in the London markets for fear of spoiling the market. These goods could be sold at a sufficiently low price, but it pays the companies owning them to destroy them, and to sell a smaller number which satisfies the wants of a limited class of people who "can afford to pay." Now, when free competition exists among sellers, as among buyers, this can never happen. It will always be to the interest of a competing producer or dealer to lower his price below that which would yield him the largest net profit on his capital were he a monopolist. If he is a monopolist he will only lower his prices provided the elasticity of demand in the commodity in question is so great that the increased consumption will be so considerable as to yield him a larger net profit. But if he is a competing dealer he does not look chiefly to the consumption of the community, but to the proportion of that consumption which he himself shall supply. The elasticity of demand, so far as his individual business is concerned, is not limited to the amount of the increased consumption of the community stimulated by a lowering of prices, but includes that portion of the custom of his rivals which he may be able to divert to himself. Hence it arises that under free competition it will be the tendency of the several competitors to drive down the prices to the point at which the most advantageously placed competitors make the minimum profit on their capital.
§ 5. It is all important to an understanding of the subject to recognise that a monopoly price and a competitive price are determined by the operation of an entirely different set of economic forces. The loose opinion that it must be to the interest of a Trust or other monopoly to sell at the same price as would be fixed by competition is quite groundless.