I try not to form beliefs about reality, at best only conclusions. So
far, I haven't come to a conclusion on this subject.
So far my bias is that the maximization assumption seems exceedingly
broad. My professor's question about why ticket agencies don't charge
market clearing prices so far seems like an anomaly to the usually
assumed profit maximization motivation. Perhaps there are other
external factors at work here. A ticketing agency is granted exclusive
rights to sell tickets at particular venues. Perhaps in return for this
monopoly they are required by the event promoter or venue owner to not
charge prices deemed to be unreasonable by a standard either objective
or subjective. That would be an extra-market force capable of
explaining away the anomaly. If this possibility is empirically untrue,
there may be other potential extra-market forces that otherwise
interfere. For now, however, let's suppose that such extra-market
forces do not suffice to explain the anomaly.
Thanks to M. Perelman for the article on scalping. I'm not at the
library at the moment, but I'll look it up when I get there. The
article seems to make the case that there are market rationales, such
as goodwill, to not charge market clearing prices even when a firm has
the market power to do so. In particular, if a firm is severely
punished by consumers for maximizing its profits, then it would be
irrational for a firm to maximize. This seems to explain my point. Some
firms might only seek a reasonable return on profit, and not a
maximization of profit, to retain the goodwill of customers.
In perfect markets for commodities, by definition the market clearing
price will be the one that maximizes profits. Should the enterprise
charge more for its tangible mass-produced goods than its competitors,
it will lose sales. Should the enterprise regularly charge much less
than the market clearing price, the enterprise will have a negative
cash flow and might even go out of business. In perfect competition,
firms maximize their rates of profit. Why should this analysis of
perfect competition lead us to believe that enterprises are generally
driven to maximize their profits? Perhaps this motivation is merely
derivative of the perfect competition situation. Perhaps maximization
is not a firm's natural motivation. (I use the adjective "natural"
loosely.)
A firm with a monopoly can make more profits than a firm in perfect
competition. Why then, do so many monopolies not do so? Arguably,
Microsoft could charge $400 per OEM license of Windows, but it only
charges about $60. (An OEM license is not the same a consumer can buy
in a store.) Microsoft may not have a total monopoly on operating
systems, but it's pretty close.
Additionally, for as long as seats have been reserved at events,
seemingly, a secondary market has sprung up to take advantage of the
fact that ticketing agencies do not charge market clearing prices. This
seems to me like an anomaly in the profit maximization deduction made
by neoclassical economics.
Andrew Hagen
[EMAIL PROTECTED]
On Tue, 20 Mar 2001 10:25:33 -0600, Carrol Cox wrote:
>You're kidding? Right? You don't really believe, do you, that
>"reasonable" can have any other meaning than "the absolute highest we
>think we can pull off"?
>
>Carrol
>
>
