ECN 203 1st Edition Lecture 15 Outline of Last Lecture II General Equilibrium Theory a Nice Assumptions III General Competitive Equilibrium and Equity a General Competitive Equilibrium b Two Conditions IV Perfect Competition and Efficiency V GCE and Distributive Justice VI Nice Assumptions VII Market Power VIII Relaxing No Market Power the Consequences IX Forms of Market Power Outline of Current Lecture X Market Power a Naturally Occurring Market Power b Economies of Scale c Artificially Created Market Power i Rent Maintenance ii Rent Seeking Current Lecture Lecture 2 20 15 Market Power o Naturally Occurring Market Power Comes from nature Example beauty athleticism These traits are a source of market power Although a pro male basketball player will make more than a female player because there is a bigger market for men s basketball These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o A natural gift is an opportunity to exploit an advantage in the market Economies of Scale and Natural Market Power Scale of production the size of the process of production o Changing scale means increasing all the factor inputs in the same proportion to expand production Returns to scale the degree to which a change in the scale of production changes the level of output Generally we refer to decreasing constant or increasing returns to scale Decreasing returns to scale refers to the case in which as the scale of production is increased the output expands proportionally less Increasing returns to scale means scale of production increases the productivity goes up Artificially Created Market Power If a firm s natural economies of scale are threatened by an emerging firm s new technology the old might choose to use the resources it has accumulated to buy up the new firm and its patents on new technology Rent Maintenance resources being allocated for the purpose of sustaining market advantage Power a complementary term for rent maintenance Using resources to sustain a power advantage Rent is a return to control based on power and rent maintenance is an effort to sustain a return to power to sustain a rent Rent Seeking an effort to achieve an artificially created advantage that will pay off and the payoff is rent Patents are artificially created power Using resources in pursuit of a power advantage A key distinction between naturally occurring market power and artificially created market power is The former is a free gift of nature The latter requires using recourses to get or maintain the market power advantage o The fact that seeking or maintaining artificially created market power requires using resources adds to the inefficiency of market power
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