Economics Questions

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Sieben — Fri, 03 Sep 2010 21:21:02 GMT

tldr

Please have consideration for you readers. Use paragraphs.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

MarLen — Thu, 02 Sep 2010 21:41:14 GMT

Need not analyze author for author of Austrian School. Ludwig von Mises and Murray Newton Rothbard admitted the existence of "natural monopoly", what called of “limited-space monopoly”. In Human Action, Von Mises said: " Limited-space monopoly is the outcome of the fact that physical conditions restrict the field of operation in such a way that only one or a few enterprises can enter it. Monopoly emerges when there is only one enterprise in the field or when the few operating enterprises combine for concerted action. It is sometimes possible for two competing trolley companies to operate in the same streets of a city. There were instances in which two or even more companies shared in supplying the residents of an area with gas, electricity, and telephone service. But even in such exceptional cases there is hardly any real competition. Conditions suggest to the rivals that they combine at least tacitly. The narrowness of the space results, one way or another, in monopoly. In practice limited-space monopoly is closely connected with license monopoly. It is practically impossible to enter the field without an understanding with the local authorities controlling the streets and their subsoil. Even in the absence of laws requiring a franchise for the establishment of public utility services, it would be necessary for the enterprises to come to an agreement with the municipal authorities. Whether or not such agreements are to be legally described as franchises is unimportant. Monopoly, of course, need not result in monopoly prices. It depends on the special data of each case whether or not a monopolistic public utility company could resort to monopoly prices. But there are certainly cases in which it can. It may be that the company is ill-advised in choosing a monopoly-price policy and that it would better serve its long-run interests by lower prices. But there is no guarantee that a monopolist will find out what is most advantageous for him. One must realize that limited-space monopoly may often result in monopoly prices. In this case we are confronted with a situation in which the market process does not accomplish its democratic function." - Chapter XVI, 6. Monopoly Prices. Murray Rothbard in Man, Economy, and State said: "In the first place, such a “limited-space monopoly” is just one case in which only one firm in a field is profitable. How many firms will be profitable in any line of production is an institutional question and depends on such concrete data as the degree of consumer demand, the type of product sold, the physical productivity of the processes, the supply and pricing of factors, the forecasting of entrepreneurs, etc. Spatial limitations may be unimportant; as in the case of the grocers, the spatial limits may allow only the narrowest of “monopolies”—the monopoly over the portion of sidewalk owned by the seller. On the other hand, conditions may be such that only one firm may be feasible in the industry. But we have seen that this is irrelevant; “monopoly” is a meaningless appellation, unless monopoly price is achieved, and, once again, there is no way of determining whether the price charged for the good is a “monopoly price” or not. And this applies to all circumstances, including a nation-wide telephone firm, a local water company, or an outstanding baseball player. All these persons or firms will be “monopolies” within their “industry.” And in all these cases, the dichotomy between “monopoly price” and “competitive price” is still an illusory one. Furthermore, there are no rational grounds by which we can preserve a separate sphere for “public utilities” and subject them to special harassment. A “public utility” industry does not differ conceptually from any other, and there is no nonarbitrary method by which we can designate certain industries to be “clothed in the public interest,” while others are not.[" - Chapter 10 Monopoly and Competition (continued).

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Student — Thu, 02 Sep 2010 03:05:51 GMT

#1. "ten economists" was written in chronological order. so he did not list karl marx as being #1, he simply discussed him first.

#2. i never said schumpeter adopted bb's theory of interest. however, i would be interested in reading those articles. could you please post links? or maybe indicate how you accessed them (i am assuming you found english translations)?

#3 i never said that schumpeter adopted ABCT. I only said he utilized kw's insights in his business cycle studies. this is not my opinion of course, schumpeter's intellectual connections to kw are elaborated here: http://halshs.archives-ouvertes.fr/docs/00/27/13/72/PDF/MOSS3.pdf

#4 schumpeter's business cycle theory is actually fairly unrelated to most endogenous growth models. aghio and howitt have based several endogenous growth models on schumpeter's basic insights regarding the connection between technological innovation, economic growth, and business cycles (described in full in their textbook http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=5058), but honestly they are rarely used.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Esuric — Thu, 02 Sep 2010 02:37:21 GMT

Bohm-Bawerk's capital theory is very interesting. There are many different interpretations of it. Schumpeter believed that he essentially incorporated most of Bohm-Bawerk's framework, as did the neoclassical general equilibrium theorists. Bohm-Bawerk completely denied this. But there is some truth to these claims, which is why Mises devotes so much time to Bohm-Bawerk in HA (and to some extent in TMC).

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Esuric — Thu, 02 Sep 2010 02:17:39 GMT

i'm sure you've made a careful study of his work as well as the work of bohm-bawerk (who was schumpeter's professor and who identified as one of the "ten great economists")

Schumpeter had Karl Marx as #1. Also, Bohm-Bawerk had many students, half of which were Austro-Marxists. But ignoring all that, Schumpeter entirely rejected Bohm-Bawerk's explanation of interest--he denied positive time preference as a categorical law of human action, claiming that interest would not exist under the stationary conditions of circular flow. "We see, therefore, that our static system," says Schumpeter, "does not by any means explain all economic phenomena, e.g., interest and the profit of the entrepreneur." (Josef Schumpeter: Des Wesen und der Hauptinhalt der theoretischen National-ökonomie, Leipzig, 1908, p.564.). Bohm-Bawerk critiques Shumpeter here: Bohm-Bawerk, "Eine 'dynamische' Theorie des Kapitalizinses," Zietschrift fur Volkswirtschaft Socialpolitik und Verwaltung, Vol. 22, 1913.

Kind of hard to be a Bohm-Bawerkian when you don't accept his theory of interest.

and knutt wicksell, (who schumpeter also regarded highly and whose contributions to monetary theory were utilized in schumpeter's own studies of the business cycle).

Schumpeter's business cycle theory is actually comprised of 5 separate theories, all of which directly contradict the Wicksell-Mises theory of cycles. They deal with long-waves (post-Keynesians love this crap), short-waves, technological shocks, ect. He's also responsible for many of the endogenous growth models we see today.

[Edited: No need to get hostile =D]

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Student — Thu, 02 Sep 2010 01:19:04 GMT

i'll let you decide where schumpeter fits in the sacred cannon. i'm sure you've made a careful study of his work as well as the work of bohm-bawerk (who was schumpeter's professor and who identified as one of the "ten great economists") and knutt wicksell, (who schumpeter also regarded highly and whose contributions to monetary theory were utilized in schumpeter's own studies of the business cycle). so i'm sure you know what you're talking about.

i only have a passing interest in economic intellectual history so prob shouldn't get into it.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Esuric — Thu, 02 Sep 2010 00:36:54 GMT

with regards to schumpeter, what is the point of your comment? you don't disagree with my statement, just note that some austrians don't like what he had to say during the calculation debate. okay?

Your usage of the term "Austrain economist" was slightly misleading (not that you intended it to be). Schumpeter is not part of the Bohm-Bawerkian/Wicksellian/Misesian tradition.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Angurse — Thu, 02 Sep 2010 00:34:25 GMT

not that i agree with this hypothesis, just funny because he is probably the least read Austrian economist among "Austrian" economists.

Shumpeter seems fairly well known actually, unlike, say, Haberler, or Rosenstein-Rodan.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Student — Thu, 02 Sep 2010 00:30:08 GMT

What's the point of this comment? To show that you passed microecon 101?

Well, I know I passed microecon 101. but i think the insights often bear repeating because they can be ignored by those who have not had the opportunity to take such a course.

with regards to schumpeter, what is the point of your comment? you don't disagree with my statement, just note that some austrians don't like what he had to say during the calculation debate. okay?

You seem to be ignoring that the existence of "natural monopolies" is highly controversial and debated.

and therefore seiben should ignore the possibility of natural monopolies all together. makes sense to me.

Saying that one should expect highly profitable ventures to eventually find financing is not "implicitly assuming complete credit markets."

one should "expect" (how often?) "highly profitable" (how profitable?) ventures to "eventually" (when?) find financing.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Esuric — Thu, 02 Sep 2010 00:11:14 GMT

i am willing to bet right now that this thread will go 2 pages before someone googles increasing returns and how they can create barriers to entry for new companies.

i am also willing to bet that thread will likely never mention Schumpeter's hypothesis that monopolies and limited competition might be desirable because competition it reduced the returns on innovation (competitors quickly moving to adopt your inventions). not that i agree with this hypothesis, just funny because he is probably the least read Austrian economist among "Austrian" economists.

What's the point of this comment? To show that you passed microecon 101? Good job. And Schumpeter is an Austrian only in the most general sense; he sided with the market socialists during the calculation debates. Either way, it's pretty simple: Austrians reject meaningless measures like concentration ratio's and the Herfindahl Index.

Also, you don't believe in x-efficiency?

first, you seem to be ignoring the possibility of a natural monopoly (where increasing returns are so great that only one producer is feasible).
http://en.wikipedia.org/wiki/Natural_monopoly

You seem to be ignoring that the existence of "natural monopolies" is highly controversial and debated.

you also seem to be using a wide variety of unspoken assumptions like complete credit markets

Saying that one should expect highly profitable ventures to eventually find financing is not "implicitly assuming complete credit markets."

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Stranger — Wed, 01 Sep 2010 23:42:34 GMT

Sieben wrote the following post at Wed, Sep 1 2010 5:15 AM:

The austrian view of competition is that there doesn't have to be a bunch of firms competing with one another at the same time. Potential entry into the market is enough. The old chess adage, "the threat is greater than the execution".

In fact the Austrian view of competition does not even need to include any producer in the model - it is strictly based on supply. Simply put, a market is competitive if anyone is allowed to increase the supply. Even if all firms have exited production because of low demand, it is still a competitive market.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Sieben — Wed, 01 Sep 2010 23:28:36 GMT

Student:
first, you seem to be ignoring the possibility of a natural monopoly (where increasing returns are so great that only one producer is feasible).

I know what a natural monopoly is. Tackling one is more difficult than the mom and pop way of doing business, but still possible. One way is to approach the consumers of the monopoly service and offer them a contract with reduced rates if they agree to switch over. Once you have secured your consumer base, you can set up infrastructure. The original company's value would probably go to crap, so you could buy up their capital on the cheap.

Kinder Morgan basically did this with their east-west CO2 pipeline. Its analogous to a road. KM wasn't actually trying to beat out any existing competitors, but it was competing for long term CO2 contracts. Once it had secured enough market share, it built the pipeline...

Anyway, lots of creative things you can do.

Student:
but beyond that, you also seem to be using a wide variety of unspoken assumptions like complete credit markets and that market demand is continuous.

Can you explain more? I don't think a priori that projects can automatically get funding. It depends on opportunity costs. The point was only that its possible to break natural monopolies.

Student:
for all the moaning some people do about the perfect competition on this board a lot of posters seem to unwittingly rely on it as an accurate representation of reality when arguing their positions.

Well the perfect competition model is indistinguishable from a cartel of firms.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Student — Wed, 01 Sep 2010 18:23:45 GMT

There are always barriers to entry, but the point is that an abusive monopoly makes it profitable to enter the market even if its really hard. I might have to get $500mil together, but if my business plan is sound, the investors should come. There are a lot of creative things you can do.

first, you seem to be ignoring the possibility of a natural monopoly (where increasing returns are so great that only one producer is feasible).
http://en.wikipedia.org/wiki/Natural_monopoly

but beyond that, you also seem to be using a wide variety of unspoken assumptions like complete credit markets and that market demand is continuous.

hmmm where else are increasing returns ignored, credit markets are assumed to be complete and demand functions are assumed to be continuos? oh yeah! the perfect competition model.

for all the moaning some people do about the perfect competition on this board a lot of posters seem to unwittingly rely on it as an accurate representation of reality when arguing their positions.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

Sieben — Wed, 01 Sep 2010 14:12:11 GMT

Student:
i am willing to bet right now that this thread will go 2 pages before someone googles increasing returns and how they can create barriers to entry for new companies.

There are always barriers to entry, but the point is that an abusive monopoly makes it profitable to enter the market even if its really hard. I might have to get $500mil together, but if my business plan is sound, the investors should come. There are a lot of creative things you can do.

Student:
i am also willing to bet that thread will likely never mention Schumpeter's hypothesis that monopolies and limited competition might be desirable because competition it reduced the returns on innovation (competitors quickly moving to adopt your inventions). not that i agree with this hypothesis, just funny because he is probably the least read Austrian economist among "Austrian" economists.

I can see how this would be possible. I think innovative firms can keep their market share by selling their services over the long term (sell 5yr contracts). It just depends how dumb you think firms are.

Re: Monopoly and oligopoly is a intrinsic characteristic to progress of capitalism

yuberries — Wed, 01 Sep 2010 05:10:09 GMT

I don't really agree with Mises that it is always the case, or even the majority of cases. There's always going to be niche competition, I don't see how can a single company provide anything for the entire world. edit: but now I've re-read it and Mises said that the intent would be, not that it would actually happen. Okay.

But that's irrelevant, because Mises doesn't think a "monopoly" is a bad thing, and I don't either. I put monopoly in quotes because I have utter disgust for the popular, defied meaning of the word. I prefer to call them leaders. True monopolies are government-protected from competition.