Economics Dictionary of ArgumentsHome
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| Monopoly price: A monopoly price in economics is the price set by a monopolist, a sole producer in a market, to maximize profit. Unlike competitive markets, the monopolist can restrict output to create scarcity, raising prices above marginal cost. This leads to higher profits but can result in reduced consumer welfare and allocative inefficiency. See also monopolies, competition, marginal costs. See also Monopolies, Oligopolies, Cartels, Markets, Price._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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Economic Theories on Monopoly Price - Dictionary of Arguments
Rothbard III 690 Monopoly Price/Economic theories/VsMonopoly price/Rothbard: Observability: Many writers have attempted to establish some criterion for distinguishing a monopoly price from a competitive price. Some call the monopoly price that price achieving permanent, long-run "monopoly profits" for a firm. This is contrasted to the "competitive price," at which, in the evenly rotating economy, profits disappear. >Evenly Rotating Economy. RothbardVs: Yet, (…) there are never permanent monopoly profits, but only monopoly gains to owners of land or labor factors. Money costs to the entrepreneur, who must buy factors of production, will tend to equal money revenues in the evenly rotating economy, whether the price is competitive or monopoly. The monopoly gains, however, are secured as income to labor or land factors. There is therefore never any identifiable element that could provide a criterion of the absence of monopoly gain. >Measurements/Rothbard, >Observation/Rothbard, >Competition/Rothbard. Rothbard III 692 Scarcity of production factors/Rothbard: (…) the attempt to establish the existence of idle resources as a criterion of monopolistic "withholding" of factors [is not] valid. Idle labor resources will always mean increased leisure, and therefore the leisure motive will always be intertwined with any alleged "monopolistic" motive. It therefore becomes impossible to separate them. The existence of idle land may always be due to the fact of the relative scarcity of labor as compared with available land. This relative scarcity makes it more serviceable to consumers, and hence more remunerative, to invest labor in certain areas of land, and not in others. Rothbard III 693 Marginal factor: A similar proposed criterion for distinguishing a monopoly price from a competitive price runs as folIows: In the competitive case, the marginal factor produces no rent; in the monopoly-price case, however, use of the monopolized factor is restricted, so that its marginal use does yield a rent. >Production factors/Rothbard. RothbardVs: We may answer, in the first place, that there is no reason to say that every factor will, in the competitive case, always be worked until it yields no rent. On the contrary, every factor is worked in a region of diminishingbut positive marginal product, not zero product. Indeed, (…) if the value product of a unit of a factor is zero, it will not be used at all. Every unit of a factor is used because it yields a value product; otherwise, it would not be used in production. And if it yields a value product, it will earn its discounted value product in income. >Marginal product/Rothbard. Rothbard III 694 Rothbard: Furthermore, even if it were true that marginal lands received zero rent, this would be irrelevant for our discussion. It would apply only to "poorer" or "inferior," as compared with more productive, lands. But a criterion of monopoly or competitive price must apply, not to factors of different quality, but to homogeneous factors. Marginal costs: Another very common attempt to distinguish between a competitive and a monopoly price rests on the alleged ideal of "marginal-cost pricing." Failure to set prices equal to marginal cost is considered an example of "monopoly" behavior. RothbardVs: There are several fatal errors in this analysis. 1) In the first place (…) there can be no such thing as "pure competition," that hypothetical state in which the demand curve for the output of a firm is infinitely elastic. Only in this never-never land does price equal marginal cost in equilibrium. Otherwise, marginal cost equals "marginal revenue" in the ERE, i.e., the revenue that a given increment of cost will yield to the firm. >Evenly Rotating Economy (ERE)/Rothbard. 2) Secondly, this equality is only a tendency that results from competition; it is not a precondition of competition. 3) Thirdly, there is no reason Why firms should ever deliberately balk at being guided by marginal-cost considerations. Their aiming at maximum net revenue will see to that. Rothbard III 695 Observation/Rothbard: It is Clear that it is impossible to distinguish competitive or monopolistic behavior on the part of a firm. It is no more possible to speak of monopoly price in the case of a cartel. In the first place, a cartel, when it sets the amount of its production in advance for the next period, is in exactly the same position as the single firm: it sets the amount ofits production at that point which it believes will maximize its monetary earnings. There is still no way of distinguishing a monopoly from a competitive or a subcompetitive price. >Cartels/Rothbard, >Cartels/Mises, >Monopolies/Rothbard. Rothbard III 696 Monopoly price: (…) there is, (…) no independent way by which we can define and distinguish a "monopoly price" from a "competitive price." There is no prior rule available to guide us in framing the distinction. To say that the monopoly price is formed when the configuration of demand is inelastic above the competitive price tells us nothing because we have no way of independently defining the "competitive price." Rothbard III 698 Location monopoly: It might be objected that in the case of a location monopoly, a monopoly price can be distinguished from a competitive price on a free market. E.g., the case of cement. RothbardVs: First, (…) the good that we must consider is the good in the hands of the consumers. E.g., The Rochester firm is superior locationally for the Rochester market; the fact that the Albany firm cannot compete is not to be blamed on the Rochester firm. Location is also a factor of production. Furthermore, another firm could, if it wished, set itself up in Rochester to compete. Rothbard III 699 Competition/location monopoly: Now, a good is homogeneous if consumers evaluate its units in the same way. If that condition holds, its units will be sold for a uniform price on the market (or rapidly tend to be sold at a uniform price). If, now, various grocers must adhere to a uniform price, then there is no location monopoly. Individual price: But what of the case where the Fifth Street grocer can charge a higher price than his competitor? Do we not have here a Clear case of an identifiable monopoly price? The answer is an emphatic No. The reason is that the economist can never equate a good with some physical substance. A good, (…) is a quantity of a thing divisible into a supply of homogeneous units. >Goods/Rothbard. And this homogeneity, (…) must be in the minds of the consuming public, not in its physical composition. Rothbard III 700 Location monopoly/Rothbard: The same analysis applies to the case of location. A good cannot be independently established as such apart from consumer preference on the market. >Preferences. Rothbard III 701 Location monopoly/Rothbard: There is another reason for abandoning any theory of locational monopoly price. If all sites are purely specific in locational value, there is no sense to the statement that they earn a "monopoly rent." For monopoly price, according to the theory, can be established only by selling less of a good and thus commanding a higher price. But all locational properties of a site differ in quality because they differ in location, and therefore there can be no restriction of sales to part of a site. Either a site is in production, or it is idle. >Natural monopolies/Rothbard, >Monopolistic competition/Rothbard, >Oligopolies/Rothbard, >Pure competition/Rothbard._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Economic Theories Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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