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Published byMargaret Naomi Hamilton Modified over 8 years ago
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Profits and competition MONOPOLIES
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Not profit maximizers, so they don’t try to keep down costs. They just want to make enough to keep stockholders “happy enough” and perform just well enough to keep their jobs so costs creep up. The result is X-inefficiency – Firms operative far less efficiently they technically could. LAZY MONOPOLIST
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Our standard model assumes the owner is taking responsibility and making decisions so wants to keep profit maximized. (Like Chick-fil-a’s model) In most cases managers make the day to day decisions. So, top lever managers often institute perks into their jobs and those of other high level managers that cause costs to rise. Check out the graph on 389. Laziness is only limited by possible competition in the market. WHY TO LAZY MONOPOLISTS EXISTS
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Competition is relative (Short-term vs. Long-term, local, national, global.) 1. If competition can find a way in to the market or open a new market then the lazy monopolist must innovate or die. IBM, Apple, Sears [Not true monopolies, but same principle] 2. Corporate take overs where another firms buys stock and then restructures the organization. COMPETITION EFFECTS
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Legal or political pursuits to limit and shut down monopolist. Learning from patents before a product is patented. (This can cause huge problems for a would be monopolists!) Reverse engineer- buying a product, breaking it down, learning from it and creating something very similar. Not protecting/deregulating Natural Monopolies. Allowing them to exist, but letting the invisible hands forces determine its control. COMPETITION EFFECTS – BREAKING DOWN MONOPOLIES
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Even the lazy monopolist will fight back if they feel their monopoly is slipping. ADVERTISING! Branding! Coffee, Chicken, Banana, steak burgers, trackers Lobbying themselves. Charging lower prices They fight just until MC=MB. If the costs are too high they won’t fight anymore. MONOPOLIES - SELF PROTECTION
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Sometimes if you have motivated people they keep costs down naturally. Adding monitoring would increase costs. Ex. People who believe in what they do. And those crazy people that like organization. (Me!) So the people sometimes keep the firm from being lazy. Think non-profits, fair-trade, just oriented businesses, etc. However, in most cases people are focused on Self-Interest. This is one main reason Perfect competition doesn’t exist. WE don’t let it. Read 390 - 391 COMPETITIVE NATURE- SIDE NOTE
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