Not So Perfect Competition
While introductory microeconomics textbooks continue to emphasize perfect competition, the real world appears to increasingly be dominated by oligopolies. Nobel Prize winning economist Joseph Stiglitz notes –
While introductory microeconomics textbooks continue to emphasize perfect competition, the real world appears to increasingly be dominated by oligopolies. Nobel Prize winning economist Joseph Stiglitz notes –
https://www.project-syndicate.org/commentary/high-monopoly-profits-persist-in-markets-by-joseph-e--stiglitz-2016-05
“In today’s economy, many sectors – telecoms, cable TV, digital branches from social media to Internet search, health insurance, pharmaceuticals, agro-business, and many more – cannot be understood through the lens of competition. In these sectors, what competition exists is oligopolistic, not the “pure” competition depicted in textbooks. A few sectors can be defined as “price taking”; firms are so small that they have no effect on market price. Agriculture is the clearest example, but government intervention in the sector is massive, and prices are not set primarily by market forces.”
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In a related vein, the basic supply-demand analysis of the labor market does not provide a good description of the rich and complex nature of real world labor market characteristics (such as, monopsony, labor heterogeneity, relative bargaining power, etc.).
The minimum wage debate provides an interesting case study of the shortcomings found in standard introductory economics textbooks:
“In today’s economy, many sectors – telecoms, cable TV, digital branches from social media to Internet search, health insurance, pharmaceuticals, agro-business, and many more – cannot be understood through the lens of competition. In these sectors, what competition exists is oligopolistic, not the “pure” competition depicted in textbooks. A few sectors can be defined as “price taking”; firms are so small that they have no effect on market price. Agriculture is the clearest example, but government intervention in the sector is massive, and prices are not set primarily by market forces.”
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In a related vein, the basic supply-demand analysis of the labor market does not provide a good description of the rich and complex nature of real world labor market characteristics (such as, monopsony, labor heterogeneity, relative bargaining power, etc.).
The minimum wage debate provides an interesting case study of the shortcomings found in standard introductory economics textbooks:
Microeconomics and the minimum wage debate
http://www.economist.com/blogs/freeexchange/2014/01/minimum-wage-and-state-microeconomics
Textbook Economics and the Minimum Wage
Where should the federal minimum wage be set?
http://www.epi.org/files/2015/we-can-afford-a-12-federal-minimum-wage.pdf
http://www.fastcompany.com/3059278/election-2016/is-a-15-national-minimum-wage-actually-feasible
“Even those who do get a raise often don’t get much of one: Two-thirds of minimum-wage workers in 2013 were still earning within 10 percent of the minimum wage a year later, up from about half in the 1990s. And two-fifths of Americans earning the minimum wage in 2008 were still in near-minimum-wage jobs five years later, despite the economy steadily improving during much of that time”
The Economist summarizes recent research on
the impact on minimum wage hikes:
Minimum Wage and Economic Mobility - A thought-provoking
piece from Ben Casselman:
http://fivethirtyeight.com/features/its-getting-harder-to-move-beyond-a-minimum-wage-job/“Even those who do get a raise often don’t get much of one: Two-thirds of minimum-wage workers in 2013 were still earning within 10 percent of the minimum wage a year later, up from about half in the 1990s. And two-fifths of Americans earning the minimum wage in 2008 were still in near-minimum-wage jobs five years later, despite the economy steadily improving during much of that time”
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