26

This is known as dividing markets or market allocation, and it is against the law in the US, the EU, and I imagine in most countries with antitrust laws.


22

This is more of an elaboration of The Almighty Bob's answer: It is true that if we start from a competitive market (i.e. large numbers of buyers and sellers), then granting market power to sellers (e.g. workers) by allowing the formation of a monopolistic cartel is bad for efficiency. Those sellers will use their market power to increase the price (and ...


13

Yes, if there were more competition then net neutrality would not be such a big issue. Any throttling would cause an ISP to lose customers to competitors. Competition is a main assumption behind why markets work. However, in this case an ISP has market power which breaks the assumption. The market power allows them to easily put smaller ISPs out of business....


13

I think your question has two parts: Is a labor union a cartel? Is a labor union therefore illegal? Let me give you the quick answer to both: 1) yes, 2) no. The longer version is the following: You are right, there is, from an economical point of view not that much of a difference between selling a good and labor, so a union could (and most times is) ...


10

The posted quote is economic nonsense. If a lender chooses to innovate and reduce cost to borrowers in order to secure a larger share of the market, the competing lenders will instantly do the same, negating the effect. This applies to any industry without intellectual property protection -- it is hardly unique to the payday loan industry. By this logic, ...


10

Declaring bankruptcy is a way to prevent creditors from seizing assets and pursuing lawsuits to recover what they are owed in a piecemeal fashion. It forces all parties to wait for a judgement that determines in what fashion various classes of creditors will be repaid. In the United States, there are two main ways a private firm goes bankrupt - known as ...


9

What he's saying is that once the burger is already made, the cost of making the burger is a sunk cost, and thus the marginal cost of the burger is just the cost of the tiny labor involved in picking it up and selling it to the customer. That's sort of an odd position to take. Obviously once the burger is cooked you can't recuperate the costs, but in the ...


8

This question really forces one to think about the role that quantity plays in the competitive equilibrium. The two main points that, I think, explain the way this works are: The market quantity is endogenous In competitive equilibrium, the market clears I think the thing that is perhaps causing confusion here is that, recalling that it is a true statement ...


8

A price-taking firm takes prices as given, but that does not mean that the firm cannot influence prices; it just means that the firm ignores its own impact on prices. Now the question is how sensible it is to assume that firms take prices as given. The usual view is that it is a reasonable assumption when the impact of a firm on prices is small enough ...


7

I do not have a special term, but I give this analogy: We know what a triangle is. But in the real world, it is impossible to draw a perfect triangle and there do not exist examples of perfect triangles. Similarly, we have just learnt what perfect competition is. But in the real world, there do not exist examples of perfect competition. Nonetheless, ...


6

The viewpoint is this. The ISP is responsible for relaying internet traffic to their customers - they have different models for this, by "speed", by amount of data, etc and this is working reasonably well. Then new suppliers of content arrive, heavy 4k streaming - content which is far more susceptible to "errors" in transmission than in ye olde days. ...


6

From the Industrial Organization by Belleflame and Petiz (Page 34/35, Chapter 2): While the m-firm concentration ratio adds market shares of a small number of firms in the market, the so-called Herfindahl index (also known as Herfindahl–Hirschman index) considers the full distribution of market shares. We can conclude that the mathematical approach in ...


6

The following paper compares the efficiency of the Bertrand and Cournot game in the case of product differentiation. However, their utility function is more general than the Dixit/Stiglitz case. You also do not have an infinite number of firms competing in each differentiated product but just one firm per differentiated product (the number of differentiated ...


6

These papers could be interesting to you. First, a classical contribution: Singh Nirvikar and Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, vol. 15(4), pages 546-554. And these two interesting papers, using the concept of competition toughness to reconcile Cournot and Bertrand: d'Aspremont, ...


5

You might want to read up on repeated games. You are right, in a one-period model, once produced, the seller has little marginal cost, so could potentially sell at any price. However, his price at $t$ will affect behavior at $t+1$. He needs to credibly commit (or signal) that he will not do this again at $t+1$, otherwise he will be stuck in the same ...


5

Perfectly competitive market: Numerous participants, so that no single participant has any influence. A perfectly competitive economic model is meant to describe a situation in which there are many participants, and the influence of each one individually is negligible. The state of the economy is thus insensitive to the actions of any single agent; only ...


5

This does sound a lot like the “contradiction” that Keen tries to derive. The key to resolving it is to remember that firms are small relative to the market, so $$\frac{\mathrm dQ}{\mathrm dq_i} = 0.$$ One way to justify the above restriction is to assume there is a continuum of firms, so that each firm has zero measure, and $$Q = \int_{j \in I} q_j \, \...


5

$AVC<AR$ means, without considering fixed cost, the firm is making a profit of $AR-AVC>0$ per unit of output. Compare the two options: keep producing vs shutdown: Keep producing: $\text{Avg Profit}=\underbrace{AR-AVC}_{>0}-AFC$ Shutdown: $\text{Avg Profit}=0-AFC$ Since $AVC<AR$, staying in production is better since the revenues can be used ...


5

Complete market is a market where every possible asset or good can be assigned a price and where you have perfect information, can make perfect contracts and zero transaction costs. Any market can be complete regardless of its market structure. So you can have complete market dominated by monopoly, or oligopoly or monopolistic competition etc. Perfectly ...


4

A big part of the answer to this question must surely be network effects. Yes, Ford has a lot of engineering talent. But so has GM. This means that Ford has to compete with GM to sell cars, and this competition limits that amount of profit that Ford can make. Ride sharing is a different story altogether. Suppose you write software that completely ...


4

Demand for existing firms' product shifts in because the entering firms attract some of the users.


4

Competition "works" in capitalism in the sense that society, as a whole, is provided with the maximum possible quantity of goods for a price which gets close to the cost of producing the good. Microeconomics studies how this works theoretically, and uses a series of assumptions to make the "mathematics" simpler, such as that everyone in the market is ...


4

Here is a fact sheet by the OECD about the effects of competition. It is mostly concerned with growth and productivity, but also discusses the effects on poor consumers and prices. It cites a wide range of empirical studies that you might find of interest. https://www.oecd.org/daf/competition/2014-competition-factsheet-for-print-en.pdf OECD, Factsheet on ...


3

Yes, Smith addresses these issues in Book 1 Chapter 10 of The Wealth of Nations. Firstly, he notes that where two jobs are in almost every respect equivalent, we should expect them to pay the same wage: "THE whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal ...


3

Wikipedia has an article worth reading. An American trust was typically a combination of companies operating effectively as an entity with dominant market power, so perhaps somewhere between a cartel and a monopoly. Trusts originally took their names from the use of trust law to establish them, but later the term was used for all large companies and ...


3

No, the marginal cost curves are not necessarily the same for each firm in the market. However the values of marginal costs are. To disprove the general claim that "The marginal cost curve of each firm in a competitive market is the same" we simply need to find one counter-example, such as the one given below: Suppose there are two firms in the market and ...


3

To complement @Ubiquitous answer, whether employers have monopsonistic power or not in the labor market is still something that is questioned in various corners of the Economics discipline. The simple observation made in a comment, that in the labor market, most of the suppliers (workers) have an urgent and immediate need to sell, to a degree higher than ...


3

Frankel examines the use of the Cobb-Douglas formulation in aggregate data, where as a matter of macroeconomic(and essentially logical) identity output is exhausted in paying the factors of production. So the macroeconomic identity states, for any aggregate production function $$Q=F(K,L) \equiv rK + wL$$ where $r,w$ are ex post average unit rewards for ...


3

This article states: In both of his seminal works in political theory, The Constitution of Liberty and Law, Legislation and Liberty, Hayek endorsed as a legitimate function of the state the power to regulate monopolies and curtail industry practices in restraint of trade. For example, in the first book, in Chapter 15, Hayek ...


Only top voted, non community-wiki answers of a minimum length are eligible