Now the Government gets involved. It really likes option C, in face option C they say is the best for you.
So the Government decides to give C - $1. Now options A, B cost $10 and C cost $9.
A & B can either lower their price, by cutting margin or process improvements to meet the cost of C. C doesn’t have to do anything to keep its competitive advantage. In fact it can decrease its rate of improvement compares to the other companies. Reducing investments and decreasing competition.
The Government doesn’t have its own money to give, so it takes your $1 in the form of taxes. It has to pay someone 10% to process your money. So it only has $0.90 to give to company C. So it borrows the $0.10 from a foreign country.
The next year you still have $10, but $1 has to go to the government. Company A & B have laid off workers trying to get their price point to $9 to be competitive with C. Company C is doing great, in fact they can now raise prices $0.10 and still have a financial edge over their competition.
You now have to pay your taxes, but you also have to pay back what you owe from last year’s debt. So now you have to pay $1.10, the Government keeps $0.10 for itself and gives company C $1.00 and gives the Foreign entity $0.02 to pay back part of the loan and interest. The government now needs to borrow $.12 to pay for its services this year.
You now have $8.98 to buy a $9.10 product. You now go to the bank or credit card to take out the $0.12 you need to pay for the product.
Boy was it nice that the government came together and lowered the cost of product C for us!