For example in the case of the labour market lower immigration means that low-skilled labour can ask higher wages or better conditions (other things equal). Low skilled labour may have even put the barrier to entry in place, e.g. by voting for a policy to restrict immigration.

Does this inelastic supply mean that the suppliers of low-skilled labour collectively have more market power?

Or is market power considered only in the market itself? i.e. the market might still clear with everyone price takers meaning that there is no market power.

  • 1
    $\begingroup$ the question in title and text are totally different. Lower immigration, money supply etc don't create barriers to entry by themselves $\endgroup$
    – csilvia
    Nov 25 '20 at 1:34
  • $\begingroup$ I've changed the question text to focus on one example. I'm primarily interested if there is a case of market power at all based on what is commonly understood as market power. $\endgroup$
    – sba222
    Nov 25 '20 at 6:52

this was answer to the original question before user completely edited it to something else

You are asking several different questions:

Do barriers to entry increase the (collective) market power of incumbent suppliers?

Not generally. For example, in Bertrand price competition firms will have no market power even if there are barriers to entry. Even Cournot monopoly won't have market power with perfectly elastic demand even if there are barriers to entry (see examples in Peitz and Belleflamme. Industrial Organization: Markets and Strategies).

Lower immigration means that low-skilled labour can ask higher wages.

This would have no a priori effect on market power. For example consider following perfectly competitive firm, where for sake of simplicity we assume labor is the only input:

$$\pi = p q -wL $$

The optimal condition for maximizing profit for such firm is: $p=w$ which implies that price is equal to marginal cost (wage). If wage increases price will increase but firm will earn zero economic profit and more importantly market power is not defined in terms of profit but in terms of firms ability to raise price above competitive what would prevail in competitive market and here that is not possible.

Lower money supply means higher interest rates.

Again the same reasoning as for labor applies. Higher interest rate would affect the cost of capital not labor but it would not affect competition.

A fixed supply of land means that landowners can ask for rent.

This is just factually incorrect. Any return to land is termed rent, even if supply of land would be flexible (see entry for rent in the Palgrave dictionary of economics by Alchian 2017). In addition even if we are talking about economic rent as opposed to just rent in general, fixed supply does not mean there will be automatically any economic rent. Under Bertrand competition two plots of land might end up having price exactly equal their maintenance even if land is fixed depending on parameters.

Hence, in all of the cases above it would be an empirical question whether there is market power or not.


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