Questions tagged [competition]

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22
votes
3answers
3k views

Why is collective bargaining by a group of employees not the same thing as price-fixing?

Employees sell their labor for wages. If a critical mass of employees get together and demand higher wages, how is this not the same thing as a critical mass of merchants illegally fixing the price of ...
18
votes
4answers
982 views

Is net neutrality not important in a competitive market of internet providers?

In my understanding, allowing ISP to throttle sites that use a lot of traffic is just price discrimination. The ISP will charge sites like Netflix, which will then pass the cost to Netflix consumers. ...
9
votes
5answers
1k views

Why don't Burgers cost 5 cents?

In this blog post, economist Bob Murphy raises a puzzle involving the principle that in a competitive market, the price equals the marginal cost: There’s a general principle from intro to ...
9
votes
3answers
428 views

Why wouldn't competition prevent “usurious” payday loan rates?

The current Wiki page on "Payday Loans" claims loans are priced above marginal cost. The justification is that If a lender chooses to innovate and reduce cost to borrowers in order to secure a ...
8
votes
4answers
366 views

Why is Uber worth almost as much as Boeing?

At $68 billion, Uber has a higher valuation than GM, Ford, and Honda. According to Microaxis, Boeing is currently valued at around $87 billion. Why is Uber worth so much? I would think that ...
8
votes
1answer
94 views

Competition and welfare - empirical evidence

Consider the following claims: less competitive markets deliver worse outcomes for consumers, less competitive markets deliver lower social welfare, less competitive markets deliver higher prices/...
7
votes
4answers
5k views

Do companies have non compete agreements between each other?

Do companies also know for a better lack of words armistice? When searching for non compete agreements everything that comes up are agreements between companies and employees, but do whole companies ...
7
votes
1answer
96 views

Measuring effects of degree of (buyer) competition on price: references

I would like to examine the effect of degree of competition (market power?) among buyers on price of a product. I have data on product price, number of buyers with nonzero purchases and a couple more ...
7
votes
1answer
1k views

Benefits of a cartel among firms

Suppose I have $n>2$ firms selling differentiated products. These firms form a cartel for the price. The cartel has size $n_c$. Let $\pi_{i,m}$ be the payoff of a firm $i$ outside the cartel and $\...
6
votes
2answers
938 views

In microeconomics : is this the contradiction in the atomicity of firms ?

Let $p$ be the market demand. It is a function of the market production $Q$. Let $q_i$ be the production of firm $i$. Reading Steve Keen (in Debunking Economics, chapter II) quoting George Stigler, I ...
5
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4answers
186 views

Why have so many legitimate smaller biotechs sprung up and thrived?

I stumbled this question on r/AskScienceDiscussion, but I'd like to ask it from a microeconomics or competition standpoint. Why can't Big Pharma accomplish what legitimate small biotechs have? ...
5
votes
1answer
85 views

Intermediate Case of Bertrand and Cournot

I am wondering whether there is a model of oligopolies in which we have some intermediate case of Bertrand and Cournot competition. What I do not mean by "intermediate" is the mixed Bertrand - Cournot ...
5
votes
6answers
13k views

What is the difference between a free market and a perfectly competitive market?

I am trying to find the distinction between a free market and a perfectly competitive market, and I can't find the right definition on what makes them different. Can someone give me a clearly ...
5
votes
1answer
5k views

What is the difference between Herfindahl Index and the Concentration Ratio

I was recently reading about the Herfindahl Index and from what I've learned so far, is that HHI is preferred over the Concentration Ratio. However, I didn't quite understand the reasoning that lead ...
5
votes
1answer
160 views

Monopolistic and Bertrand (Nash) Competition

Can we view the monopolistic competition equilibrium (a la Dixit-Stigliz) as the limit case of a Bertrand competition with an infinite number of firms providing differentiated products, where the ...
5
votes
1answer
102 views

Has it truly been established that the restaurant industry operates on thin margins?

For as long as I can remember I've constantly seen the truism that restaurants operate on "razor sharp margins" repeated endlessly by the media, the restaurant industry, and the average joe. This ...
4
votes
2answers
602 views

What would you call a real market that is close to perfect competition?

I want to explain perfect competition to students using a few practical examples without going into much of the theory. But I want it to be theoretically accurate and I don't want to claim that those ...
4
votes
1answer
179 views

What has been the reception of Posner & Weyl’s claim that property rights lead to market power?

Posner & Weyl claim that property rights lead to monopoly rents: Property Is Only Another Name for Monopoly Radical Markets Have their claims been elaborated, tested, or peer-reviewed? In ...
4
votes
1answer
1k views

Hayek's defense of competition regulation

This article claims Hayek endorsed competition regulation: As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from ...
4
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0answers
54 views

Examples of Analysis of Competition in a Latent Product Characteristic Space

Competition between firms offering heterogenous products is often an exercise of constructing the right kind of spatial model. There is the famous Hotelling model and many other papers that model ...
4
votes
0answers
216 views

Why are inventions inevitably correlated with imperfect competition?

Romer (1990) elaborates the incompatibility of nonrival inputs with constant returns to scale: If a production function depends on rival and nonrival inputs and both inputs are productive, then the ...
3
votes
1answer
1k views

Why bankrupt firms continue to operate?

Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down? Well, obviously there's a reason behind ...
3
votes
1answer
51 views

Why do some perfectly competitive, loss-making firms shutdown and others don't?

Question: Why do perfectly competitive, loss-making firms that have (AC>AVC>AR) shutdown but Firms that have (AC>AR>AVC) not shutdown? -Both of these types of firms are making a loss. How is it ...
3
votes
1answer
1k views

Why does demand curve shift in, in a monopolistic competitive market?

In a monopolistic competitive market, demand curves shift in, if more firms enter the market. I can't seem to wrap my head around it. Demand remains the same, supply has increased. Shouldn't entry of ...
3
votes
2answers
50 views

How are real income and utility the same thing?

The textbook I'm using, "Microeconomic Theory: Basic Principles and Extensions", treats utility and real income as the same thing in the chapters on compensated and uncompensated demand. I ...
3
votes
2answers
105 views

What are possible solutions when promoting competition is not applicable?

Usually, more competition means lower prices and higher quality as less effective businesses go out of business. However, it appears that it's not always the case. When there're a lot of health ...
3
votes
1answer
45 views

Interpreting wedge between MP and wage

I am an econ master student and I need a bit of help understanding an issue, for my thesis. I have two related questions. Assume a firm producing a good with labor and capital, $Y=F(L,\bar K)$. ...
3
votes
2answers
226 views

Adam Smith and wage gap?

Recently I was reading up on Adam Smith's economic philosophy of competition (i.e self interest) and division of labor. While I understand (and agree) with Smith's commentary that free markets and ...
3
votes
2answers
2k views

Are market structures on a spectrum?

So I understand that each market structure has their own characteristics, and that for instance Perfect Competition involves high competition, and I believe Monopolistic competition slightly less so, ...
3
votes
0answers
21 views

Are modern conglomerate mergers better or worse for economic competition?

Modern conglomerate mergers differ from those from decades ago as, even though they takeover smaller companies, they have a more narrow focus on related business and, in order to be successful, have ...
3
votes
0answers
102 views

Empirical Evidence of Cournot Competition?

Is there empirical evidence to validate the use of Cournot competition between multiple suppliers and a buyer? Are there models which extend Cournot competition to different levels in a larger supply ...
2
votes
4answers
207 views

Why do we spread knowledge across nations?

We have access to lots of knowledge on paper sharing platforms, open course platforms, open-source platforms and question asking platforms and etc, and Tesla opened all its electric car patents in ...
2
votes
3answers
405 views

Why does competition work for capitalism?

As far as I know, capitalism is based on competition: If two(or more) companies produce similar products that compete against other, these companies are in a competition. Because the objective of a ...
2
votes
1answer
480 views

Competitive vs complete and non-competitive vs incomplete marekts

The very insightful questions that arise, when someone studies micro foundation are the following: What is the difference between competitive and complete marekts? When we refer to the first is it ...
2
votes
1answer
432 views

How can perfectly competitive firms earn zero profits?

Consider a firm that chooses the quantity of labour $L$ to hire which maximises its profits. As usual, we suppose that output $Y$ is increasing in $L$ but at a strictly decreasing rate; and for ...
2
votes
1answer
333 views

Non-constant returns to scale and competitive factor markets

I am having difficulties to understand the conclusion in bold below, taken from Frankel (1962): A second limitation of the Cobb-Douglas function appears when it is fitted to historical ...
2
votes
1answer
265 views

What exactly is a trust?

In my history class, we're studying the Industrial Revolution and how Rockefeller came to dominate the oil industry with his Standard Oil company. According to our textbook, a man named Samuel Dodd (...
2
votes
1answer
95 views

Does the Labor Theory of Value hold in the long term in competitive markets?

Most criticisms of the Labor Theory of Value I have come across go something like this quote from Carl Menger: There is no necessary and direct connection between the value of a good and whether, or ...
2
votes
1answer
40 views

The Dumping Argument and Trusts

I have often heard the following argument against the antimonopoly/anticollusion law: Whenever the entrepreneurs decide to enter into "illegal" collaboration, each one has an opportunity to ...
2
votes
1answer
33 views

Does the theory of contestable markets apply to industries where there is a natural monopoly?

The theory contestable markets requires that there be no barriers to entry, no sunk costs, and access to the same level of technology. I know common industries that have natural monopolies (like ...
2
votes
2answers
6k views

Is the marginal cost the same for every firm in a perfectly competitive market?

Spin-off from: market equilibrium quantity $\ne$ firm profit maximising quantity? Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit ...
2
votes
1answer
75 views

Mathemtical Economics Question regarding Profit Maximization

I'm studying Mathematical Economics and there's this question that I'm unable to understand. Q. Suppose a firm faces a demand curve for its product $P = 32 - 2Q$, and the firm's costs of production ...
2
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0answers
44 views

Can State Owned Enterprises compete with each other without a private enterprise in a market? Examples

In a domestic market, there exist multiple (around 5) multi-product state-owned enterprises. In a few products, SOEs compete with private enterprises while in the majority of products, the SOEs share ...
2
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0answers
91 views

Economies of scale in Robinson Crusoe economy?

I encountered the following question: Which of the following will NOT exist in a one-man economy? 1. competition 2. private property rights 3. economies of scale Turns out the answer was 1 and 2. I ...
2
votes
0answers
22 views

Are there times when firms compete more with each other?

I have the impression that sometimes firms are fiercely competing with each other, innovating and trying to gain market share and other times when firms are just hanging on. Are there any references ...
2
votes
0answers
74 views

Forming of consumption habits in dynamic equilibrium model?

I just have a question, if you know an example where the consumers form a habit about their consumption in a perfect competition setup. I found this paper by Fuhrer, but it does not solve the it in a ...
2
votes
0answers
70 views

Decreasing consumption prices and increasing housing prices

It's election time in my country. The government boasts a decrease of 5% in consumption prices thanks to removing regulations, while the opposition blames the government for an increase of 5% in ...
1
vote
2answers
48 views

Are urban land (location) markets considered competitive even though the market price does not equal marginal cost (zero)?

Urban land (location) supply is fixed and the marginal cost of bringing an urban plot into production is zero. Even when land owners do not collude to limit the supply, the fixed supply arguably ...
1
vote
3answers
271 views

Do price controls increase competition?

Question: Is there any way to show that price controls might increase competition? I'm trying to find a way, any way, that price controls might lead to an increase in competition between companies. I'...
1
vote
1answer
78 views

Prices set by firms are the same in a Salop circle. But why?

Trying to calculate the prices charged by each firm, I don't understand why the solution argues that all firms set the same price. If I use the assumption that they are the same, I can figure out the ...