Assuming that III was able to engage in production, it may do so in conditions where the excess demand over the supply of IV causes the market price to rise, but not by a sufficient amount to enable III to obtain a sufficient return, so as to pay the full amount of absolute rent. Its also possible that, if the capitalist owning III is also a landowner, they discount the payment of absolute rent to themselves. They may then engage in production, selling their output at its price of production, and thereby undercut the output from IV, where the capitalist has to pay absolute rent. Marx says,
“His competition would force IV to sell below its hitherto prevailing price of £ 1 5 35/37 s, and even below the price of £ 1 5s. And in this way III would be driven out of the field. And IV would be capable of driving III out every time. It would only have to reduce the price to the level of its own costs of production, which are lower than those of III.” (p 304)
But, that assumes that IV is also a landowner, or that the absolute rent faced by IV is reduced. If the absolute rent that IV has to pay is greater than the difference in the price of production between III and IV, then IV could be undercut by III. If III enters production, throwing its 75 tons on to the market, this increased supply, relative to demand will cause the market price to fall. However, the fall in the market price will then cause the demand to rise, not as the result of a shift in the demand curve, but a movement along the demand curve.
“Either the market expands to such an extent that IV can dispose of its 92 1/2 tons as before, despite the newly-added 75, or it does not expand to this degree, so that a part of the product of IV and III would be surplus. In this case IV, since it dominates the market, would continue to lower [the price] until the capital in III is reduced to the appropriate size, that is until only that amount of capital is invested in it as is just sufficient for the entire product of IV to be absorbed.” (p 304-5)
There would be a temporary overproduction, forcing the market-price down to a level where all of the output is consumed. But, this is only possible where the output from III occurs where the capitalist and landowner are one and the same, and so where landed property ceases to be a barrier to the investment of capital.
“But if landed property as such confronts capital in III, then there is no reason at all why the landowner should hand over his acres for cultivation without drawing a rent from them, why he should hand over his land before the price of IV has risen to a level which is at least above the cost-price of III. If this rise is only small, then, in any country under capitalist production, III will continue to be withheld from capital as a field of action, unless there is no other form in which it can yield a rent. But it will never be put under cultivation before it yields a rent, before the price of IV is above the cost-price of III, i.e., before IV yields a differential rent in addition to its old rent.” (p 305)
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