At 11:10 AM 5/3/01 -0500, you wrote:
>What, exactly, is "monopolistically competitive markets with entry"? It
>is partially but not wholly decipherable as ordinary language.
it does sound oxymoronic, but it fits with a Marxian point, i.e., that pure
monopoly and pure competition are almost nonexistent while capitalism is
always competitive and always monopolistic.
The standard model of MC describes a large bunch of firms in a market,
where each offers a slightly different product. My example for teaching it
is rock 'n' roll bands (of the garage-band rather than the superstar
variety). Because each offers different music (or "music" to old fogies
like myself), there's brand -- or band -- loyalty, so that each can raise
prices a little (or lower quality a little) without losing all customers.
(In a perfectly competitive market, no firm can raise prices. If one does,
it loses all customers.)
The garage-band market also has easy entry: kids can buy electric guitars,
amps, etc. at their local pawnshops and set up bands. Accumulation of human
capital (i.e., talent) isn't important. (Sorry, my ear is jaundiced.) So
any profits that a band makes disappear as we see a decline in the demand
for each band's services. In the end, we see "excess capacity," meaning
that the bands don't have as many gigs as they'd like to have. Their
equipment goes unused. (This may be a good thing, since it gives them
opportunity to practice.)
The problem with the standard model of MC is that (1) it assumes that all
"firms" have the same cost structure (even though they produce different
products); and (2) it focuses on equilibrium, ignoring the process. In
reality, at any one time, there are bands that have profits and others that
have losses. So some are trying to expand, while others are leaving the
market (unless they _hope_ to "make it big in the future). If the
zero-profit prediction is to make any sense, it would be _on average_, not
for any individual firm.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
