Now, suppose there is a demand for 20,000 boxes of soap in a week. If Brown and Jones are content to divide the trade, each may sell 10,000 boxes at a profit of sixpence, and so may clear a total profit of £250.
If, by repeated undercutting, the profit falls to a penny a box, Brown and Jones will have very little more than £80 to divide between them. And it is clear that it will pay them better to divide the trade, for it would pay either of them better to take half the trade at even a threepenny profit than to secure it all at a profit of one penny.
Well, Brown and Jones have the full use of their faculties, and are well aware of the number of beans that make five.
Therefore they will not compete beyond the point at which competition will increase their gross profits.
And so we shall find in most businesses, from great railways down to tooth brushes, that the difference in prices, quality being equal, is not very great amongst native traders, and that a margin of profit is always left.
At the same time, so far as competition does lower prices without lowering quality, the benefit is to the consumer, and that much is to be put to the credit of competition.
But even there, on its strongest line, competition is beaten by State or Municipal co-operation.
Because, assuming that the State or Municipality can produce any article as cheaply as a private firm, the State or the Municipality can always beat the private trader in price to the extent of the trader's profit.
For no trader will continue to trade unless he makes some profit, whereas the State or Municipality wants no profit, but works for use or for service.