Econ / Monopoly Question

[TomCollins]

[ QUOTE ]
Yeah...so this occurs naturally...how?

I mean, I can see how this happens if, say, government were to forcibly prevent people from entering the market, but absent that, the "monopolist" has to fear competition even if he currently has no competitors.

[/ QUOTE ]

If you have become so good at making something, that you can mark up the price so much, no one else dares enter the market. They enter, you make it unprofitable for them to do so. So no one is stupid enough to enter.

If you don't think this happens naturally, you are wrong. I currently work in an industry where this is the case. We have virtually no competition and insane markup. No one can come close to making these goods as cheap as we can.

[ojc02]

[ QUOTE ]
Yeah...so this occurs naturally...how?

I mean, I can see how this happens if, say, government were to forcibly prevent people from entering the market, but absent that, the "monopolist" has to fear competition even if he currently has no competitors.

[/ QUOTE ]

Well, the reason I was given is what I posted in the OP. Also, there's nothing to stop them from changing their prices depending on the competitive landscape.

I understand that this explanation is a recent one and not the reason given back in the day when regulation of market share started (just to be clear, I do not approve of intervention in the market), but I just want to understand why the situation I described in the OP would not lead to monopoly. Does the average cost curve not really look like that? Is my interpretation of what would happen because of it wrong? I just want to learn [img]/images/graemlins/smile.gif[/img]

[BCPVP]

[ QUOTE ]
The dead weight loss is the red triangle and represents the value lost by the consumer if there is a monopoly as opposed to perfect competition.

The automatic reaction of most economists seems to be that they are upset about dead weight loss. I don't see the problem though. Why should we favor one side of the trade over the other?

[/ QUOTE ]
I think many of the Austrians have problems with the assumptions for perfect competition. Dominick Armentano might need to start paying me for promoting his book so much, but he discusses these (imo, totally unrealistic) assumptions and how much of antitrust legislation is based on these ideas about perfect competition and social welfare loss. I'll try and dig around for a free source to his argument.

[bobman0330]

[ QUOTE ]
The automatic reaction of most economists seems to be that they are upset about dead weight loss. I don't see the problem though. Why should we favor one side of the trade over the other?

[/ QUOTE ]

The concern over DWL is what happens when you view both sides equally. If you valued the customer over the producer, you would worry about both the red triangle and the gray square. The gray square represents a transfer from the public to the monopolist. The red triangle is just a loss of wealth, not balanced by anything.

[Skidoo]

[ QUOTE ]
-They will pass their low costs on to consumers. In this case the consumers are served best by having a monopoly and I don't see the problem.

-They will use their "monopoly" position to attempt to charge exorbitant prices, in which case a new firm can enter the market and compete, with costs higher than firm A's but consumer costs lower than A's

[/ QUOTE ]

Consideration of the Market Power available through vertical cartel arrangements needs to be included in your nice list.

[Tito Jackson]

Dead weight loss represents the surplus lost either by the producer or consumer side that is not offset by a proportional increase in surplus by the opposite side. That net loss in welfare is "lost" and no longer can be utilized by anyone.

[ojc02]

Felz,

Do you support the minimum wage?

[Felz]

No, because it leads to inefficiency in the labour market.

What I support however is grants to people who can't support themselves through their own ressources (specifically their human ressources).

[ojc02]

Ah ok, I only asked because it seemed like you could draw a dead-weight-loss equivalent in the labor market caused by the minimum wage.

Strangely, the idea that the minimum wage causes job losses has been a seemingly unresolved point of contention on this forum although I think most now agree that it does.

Edit: Oh, incidentally, I obviously disagree with the grant idea but that's really a different issue.

[Felz]

[ QUOTE ]
Ah ok, I only asked because it seemed like you could draw a dead-weight-loss equivalent in the labor market caused by the minimum wage.

[/ QUOTE ]

Indeed the same ideas apply.

Just to make that clear (nothing to do with minimum wages), the tragedy with natural monopolies is that it's efficient to have a monopoly - due to decreasing average cost that are higher than the marginal cost - as it can and eventually will produce at minimum average cost. Only problem is how to make sure the monopolist in the end doesn't charge the Cournot price resulting in the well known dead weight loss.