4
Demand for existing firms' product shifts in because the entering firms attract some of the users.
3
The market for lemons. Paper is here.
The example most commonly given is used cars. The result is market failure.
3
Thanks for the hint and the link! I think I now managed to find the solution.
Putting the exponent on the LHS and replacing
$C_t^{1-\gamma}$ with $C+(1-\gamma) C^{1-\gamma}C \tilde{c}$
and
$C_t(i)^{1-\gamma}$ with $C(i)+(1-\gamma)C(i)^{1-\gamma}\tilde{c}_t(i)$
i get (subtracting Steady State values):
$(1-\gamma) C^{1-\gamma}C \tilde{c}=\int_0^1 (1-\...
3
The problem is the following:
$$
\begin{align*}
\max_{Q, q_\omega} Q \text{ s.t. } &\int Y\left(q_\omega/Q\right) d\omega = 1,\\
&\int p_\omega q_\omega d\omega = y
\end{align*}
$$
The first order conditions give:
$$
1 - \gamma \int Y'\left(\frac{q_\omega}{Q}\right) \frac{q_{\omega}}{Q^2} d \omega = 0,\\
\gamma Y'\left(\frac{q_\omega}{Q}\right)\frac{...
3
As we have discussed in the comments, the utility function used in the book is Cobb-Douglas: $U = CM^{\mu}A^{1 - \mu}$. The well known fact mentioned in equation (3.3) on page 57 - the one that you highlighted - is that the Cobb-Douglas utility function is homothetic - the share of total income spent on any of the goods is constant over all possible incomes. ...
2
Unfortunately, I'm not sure there's a clear answer to your question, since it so often depends on what the specific needs are for the specific project. Overall, there are a number of different ways to try and measure concentration and market power (as you note in the question).
That said, there's definitely a lot of interplay between different measures, ...
2
Yes, you are describing the (British) East India Company. A royal charter granted it a 15 year monopoly on English trade with "all countries east of the Cape of Good Hope and west of the Straits of Magellan". Also noteworthy, "at the height of its rule in India, the British East India company had a private army of about 260,000 — twice the size of the ...
2
It is possible for firms to have constant marginal costs in monopolistic competition in theory. Nevertheless, they must also have fixed costs. The fixed costs prevent firms from entering in sufficient numbers such that you would have perfect competition.
As to whether constant marginal costs are realistic in you scenario, that depends on what you believe ...
1
But my question is, will the slope of the demand curve change as it moves leftward?
The slope does not change because one assumes that relative prices and consumer preferences do not change. This is a ceteris paribus interpreation you want to see what happens when new competitiors enter the market (keeping everything else as it is). There are the same ...
1
The article Quality of Information and Oligopolistic Price
Discrimination by Liu and Serfes covers this topic in great detail. It also has a rather nice literature review.
1
Yes, we can model this as a choice under uncertainty, where the distribution is over the set of prices the consumer may face. The consumer could have an expected budget with expected demands and you would need to allow the consumer to go into debt if prices are higher than their wealth (think a quasilinear environment).
The second part, where the consumer ...
1
Since they are different retailers, their products are not perfectly homogeneous. The differences might be in delivery times, friendliness of representatives, packaging etc. So, their products are not strictly identical.
For the monopolistic competition, it is mentioned that there are multiple retailers. If we assume they do not collude, there will be a ...
1
The automotive industry is being disrupted by new trends such as electric vehicles and self-driving cars. These, still, represent a minor part of the market.
So the answer would be no, for the moment besides media attention, there weren't gigantic shifts in the industry as to have monopolies. Looking at the last years data it seems to remain an oligopoly ...
1
Depends on what you mean by 'possible'. The liquor stores in your example could form a union, and collectively bargain with brands. Then if a brand breaks a contract with one of them, they all break the contract. This would greatly disincentivize the brands' strong arm practice.
In my opinion this is unlikely to work (it is very hard to organize), but it is ...
1
The monopolist will restrict output to be able to charge a higher price.
It is true that if the monopolist reduced the price, it could sell more units, but the benefit of selling more units is more than offset by the fact that the monopolist would have to charge a lower price on all units that were previously sold at a higher price.
Profits are maximised ...
1
If there were such a spectrum, it would not be one dimensional. For instance, we could compare the competitiveness of markets with homogeneous products in terms of the number of firms in that market, and have the following spectrum:
monopoly: one firm, no competition
(Cournot) oligopoly: $n$ firms ($n<\infty$), imperfect competition
perfect competition: ...
1
This depends on how you define the good in question, which is a typical problem when talking about market structure. If the good is "parking at the airport " then it's probably a monopoly since most airports manage their own or through a single contractor on their property. If the good is "parking for the airport" then you have firms providing the product ...
1
If there are different companies offering with different prices, but not so many companies that it is perfect competition, then it is monopolistic and not a monopoly.
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