[For your scenario to come to pass, EVERYONE must have perfect trust, perfect foresight, perfect capital mobility and perfect fairness (and that's what the simulations expect, by the way.) ]
Nonsense. I don't rely on vendors to have trust or foresight. I rely on their desperation to hold market when faced with consumers that punish them for not underbidding their competitors.
It's a dynamic process that happens automatically every day in a free market. It is not something that relies on central planning, foresight, agreement, or trust.
Like the way Exxon/Mobil is being punished in the marketplace?
There are few markets where "lowest price" always wins ... perhaps you can explain the bottled water phenomenon? Or the Designer Sunglasses market??? $250 for a couple of cents of plastic and two hinges?
Yeah ... punishment ...
We don't live in a retail-price-driven economy; we live in a perceived value economy. That's why marketing works so well. We create the perception of value in the mind where none exists in practice. You don't have to lower your price if you can convince the buyer that the goods are worth the price ... even if your "competitor" is less expensive ... can you say iPod?