Good example of Robinsonian (Joan not Crusoe) waste of competition. Do you
give this example in the textbook? I have shown similar results in the
market for pesticides and oranges in California (got me attacked by the
Council on Agricultural Science and Technology and had industry lawyers
trying to suppress publication of the ultimate EPA report) and in the market
for mammography machines in the U.S. (that's why the US spends 2-4 more
money on breast cancer screening per capita than any other country).
The question is, are mc markets with entry a textbook oddity (that is the
impression, I think given by most micro textbooks) or much more the norm for
what gets called "competitive markets" in the U.S. I think another
interesting point, is that you can't abstract from institutional context in
these situations. In the case of textbooks and mammography you have what
nc's call the prinicpal-agent relationship (but it really goes beyond
individuals to institutional structures and social norms) and in the case of
pesticides and oranges the "stucture" of the market depends on the
institutional arrangements of grower coops and chemical industry rep -
farmer relationships. The problem with the typical micro textbook is that
all institutional relationships are assumed away (more than that - they are
obliterated as a subject of economics) so that one is left with model of
perfect competition as the natural state of the market.
-----Original Message-----
From: Brad DeLong [mailto:[EMAIL PROTECTED]]
Sent: Thursday, May 03, 2001 12:26 AM
To: [EMAIL PROTECTED]
Subject: [PEN-L:11140] Re: RE: Re: Re: brad de long textbook
>Jim wrote,
>> After all, it's the
>> sovereign consumers who decide what
>> sucks and what doesn't suck.
>
>But remember one of the key characteristics of the
>textbook market--the ultimate user (the student)
>does not pick the book. The professor does (and
>most often the professor does not have information
>about the price).
Say, rather, that demand for books is highly inelastic once the
professor has adopted it, and that total $$$ spent by students
doesn't play a large role (it does play some role) in the
professorial adoption decision.
Publishers and editors will say that although they use their local
post-adoption monopoly power to the fullest to extract revenue from
students, they and their companies don't get to keep it. They compete
for course adoptions by spending more and more money on supplements
and add-ons that they hope will make the professor happy, and make
him or her adopt the book.
This is a highly dissipative activity: the value of the supplements
to the professor is much less than the cost to the students of the
money spent producing them. It is a perfect illustration of how
monopolistically competitive markets with entry do not produce
anything like the social optimum...
Brad DeLong
