The theory of monopolistic competition

As you read the scenarios, you can play the part of one of the prisoners.

The theory of monopolistic competition

Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space.

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Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it.

Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons.

First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible.

Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend.

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This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors. Lynn for introducing me to these issues in the first place.

For thoughtful feedback at various stages of this project, I am also grateful to Christopher R. All errors are my own. Customers celebrated and the competition languished. Nevertheless, a segment of shareholders believed that by dumping money into advertising and steep discounts, Amazon was making a sound investment that would yield returns once e-commerce took off.

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Each quarter the company would report losses, and its stock price would rise. Ponzi Scheme or Wal-Mart of the Web? Although Amazon has clocked staggering growth—reporting double-digit increases in net sales yearly—it reports meager profits, choosing to invest aggressively instead.

Monopolistic competition - Wikipedia Pure competition and monopoly A large number of sellers: A large number of buyers:
What is 'Monopolistic Competition' Inefficiency[ edit ] There are two sources of inefficiency in the MC market structure. Since the MC firm's demand curve is downward sloping this means that the firm will be charging a price that exceeds marginal costs.
Characteristics Model agencies collude to fix rates Regulators find leading model agencies guilty of price fixing. Read more Monopolistic competition The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product.
Pricing under monopolistic and oligopolistic competition There had been, as regards the progress of such theory, a relatively sterile interlude of about two decades after the first appearance of Mill's Principles.
Egwald Economics - Monopolistic Competition See Article History Monopolistic competition, market situation in which there may be many independent buyers and many independent sellers but competition is imperfect because of product differentiation, geographical fragmentation of the market, or some similar condition.

Due to a change in legal thinking and practice in the s and s, antitrust law now assesses competition largely with an eye to the short-term interests of consumers, not producers or the health of the market as a whole; antitrust doctrine views low consumer prices, alone, to be evidence of sound competition.

By this measure, Amazon has excelled; it has evaded government scrutiny in part through fervently devoting its business strategy and rhetoric to reducing prices for consumers. With its missionary zeal for consumers, Amazon has marched toward monopoly by singing the tune of contemporary antitrust.

Focusing on these metrics instead blinds us to the potential hazards. My argument is that gauging real competition in the twenty-first century marketplace—especially in the case of online platforms—requires analyzing the underlying structure and dynamics of markets.

Rather than pegging competition to a narrow set of outcomes, this approach would examine the competitive process itself. This is the approach I adopt in this Note. Part I gives an overview of the shift in antitrust away from economic structuralism in favor of price theory and identifies how this departure has played out in two areas of enforcement: Part II questions this narrow focus on consumer welfare as largely measured by prices, arguing that assessing structure is vital to protect important antitrust values.

The theory of monopolistic competition

The Note then assesses how antitrust law can address the challenges raised by online platforms like Amazon. Part V considers what capital markets suggest about the economics of Amazon and other internet platforms.

Part VI offers two approaches for addressing the power of dominant platforms: In this Part, I trace this history by sketching out how a structure-based view of competition has been replaced by price theory and exploring how this shift has played out through changes in doctrine and enforcement.

Broadly, economic structuralism rests on the idea that concentrated market structures promote anticompetitive forms of conduct.

This market structure-based understanding of competition was a foundation of antitrust thought and policy through the s. Subscribing to this view, courts blocked mergers that they determined would lead to anticompetitive market structures.

The theory of monopolistic competition

In some instances, this meant halting horizontal deals—mergers combining two direct competitors operating in the same market or product line—that would have handed the new entity a large share of the market.

The Chicago School approach bases its vision of industrial organization on a simple theoretical premise: A failure to act in this fashion will be punished by the competitive forces of the market.

First, it led to a significant narrowing of the concept of entry barriers. An entry barrier is a cost that must be borne by a firm seeking to enter an industry but is not carried by firms already in the industry.

The second consequence of the shift away from structuralism was that consumer prices became the dominant metric for assessing competition.Monopolistic competition. The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product..

Monopolistic competition as a market structure was first identified in the s by American economist Edward Chamberlin, and English economist Joan Robinson.

Many small businesses operate under . The Theory of Monopolistic Competition, Marketing’s Intellectual History, and the Product Differentiation Versus Market Segmentation Controversy.

Monopolistic competition: Monopolistic competition, market situation in which there may be many independent buyers and many independent sellers but competition is imperfect because of product differentiation, geographical fragmentation of the market, or some similar condition.

The theory was developed almost simultaneously. The constant elasticity of substitution (CES) model of monopolistic competition, developed by Dixit and Stiglitz (), has been used in so many economic fields that a large number of scholars view it as virtually the model of monopolistic competition.

In treatments of Monopolistic Competition, Edward Chamberlin and Joan Robinson are usually credited with simultaneously and independently developing the theory of monopolistic or imper- fect competition.

The Mathematical Aspect On its formal side then, all "neo-classical" economics represented an early stage of the long, slow development, which still is going on today, of "mathematical economics" or what may be called a gradual "mathematicization" of economic theory.

Theory of Monopolistic Competition | work by Chamberlin | nationwidesecretarial.com