A Cynical Look On Competition: Government Style! Part 2

Dan makes marbles. He's the only marble maker around, and he can make a marble out of nearly anything. His best customer is Fred.
Fred sells marbles. Fred's marbles are made of solid gold. Each marble costs him 10 dollars, but he sells them for 11 dollars.
One day, George opens up a marble shop. George sells marbles made of painted glass for 5 dollars. The marbles cost George 6 dollars each. The government declares Fred has to pay George 50% of his sales. The government also declares that refusing to sell marbles to George because he's losing money and won't be able to pay you back is illegal.
Dan still makes money, because he still profits on all of Fred's sales. He loses money every time George sells a marble, though.
Fred reacts by raising his marble price to 21 dollars, and retaining the solid gold marbles. Fewer people want to buy Fred's marbles, because they're so much more expensive. Fred reacts by lowering the quality of his marbles to silver.
Fred's silver marbles cost him 8 dollars each. He sells them for 17 dollars each. More customers come to Fred's store, but the marbles aren't as good. Fred still needs more customers. He decided to move down to marbles made of iron.
Fred's iron marbles cost him 6 dollars each. He's desperate for customers, so he sells them for 12.02. The quality is even lower now, and Fred still can barely scrape even. Fred decides he's got to move prices lower than George's.
Fred decided to buy hollow glass marbles that break if you so much as breath at them. These marbles cost Fred 50 cents each. He tries to sell than for 1.02. Nobody wants to buy such a terrible product, and Fred goes out of business.
George, who had been getting half of Fred's sales, suddenly begins to lose money. Due to his government contract, he cannot change his prices nor the type of marble he sells. George loses massive amounts of money.
Dan, who had been selling the marbles to Fred and George, cannot afford to continue to sell George marbles, as George does not pay him. Dan goes out of business.
George no longer has any marbles to sell. George goes out of business.
Now nobody sells marbles! Isn't this so much better?


If you missed the comparison, Fred is the free market. He is trying to maximize his profit at every step. George is the government, he can lose money on every sale, but make it up by sucking money away from Fred. Dan is the development, he supplies the technology and production. He loses money selling to George, but cannot stop, because George is his boss.