
Celebrating humanity's flourishing through the spread of capitalism and the rule of law
14 Dec 2014 Leave a comment
in entrepreneurship, financial economics, industrial organisation, survivor principle Tags: creative destruction, efficient market hypothesis, market selection, survivor principle, The meaning of competition

13 Dec 2014 Leave a comment
in industrial organisation, labour economics, organisational economics, personnel economics Tags: demand for labour, derived demand for labour, profit-maximisation
Firms differ in the skill compositions of their labour forces because higher-skilled labour is not always the most profitable type of labour to hire.
A profit-minded firm seeks low costs per unit of labour. In truth, nothing is expensive or cheap. This is because buyers will keep buying until the marginal cost equals the marginal benefit. The next unit was not purchased because it wasn’t worth the cost. The last unit was bought because its cost just matched its benefit.
The most cost-effective labour is the labour with the lowest ratio of wages to output. Low cost per unit of output is the goal whether it is comes from low wages or high labour productivity (Lazear 1998).

The wage spread between high quality and lower quality workers is large enough such that no employer hiring lower quality workers can profitably switch to hire higher quality recruits and no firms hiring high-quality workers will switch to hire lower quality recruits (Lazear 1998).
Employers will buy more of an under-priced skill until the returns to labour equalise again across different skill levels and the hiring of any more of the hitherto mispriced skill is no longer profitable because of rising wages.
Firms of all sizes will revisit their skills strategies when market conditions change if they hope to survive in their new circumstances.
11 Dec 2014 Leave a comment

09 Dec 2014 Leave a comment
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06 Dec 2014 Leave a comment
in applied price theory, applied welfare economics, industrial organisation, survivor principle Tags: anti-trust law, competition law, creative destruction, The meaning of competition

There is a distinction between controlling the supply of a product and producing or selling most of the supply of a product.
“Dominant” producers who sell a major portion of a product’s supply usually have no control over the supply. They have no power to set any lower level of industry output and a higher price than that which would prevail in a market with many suppliers and no dominant firm.
Usually, a dominant producer is the most efficient firm in the industry. Its large output is the result of its efficiency in supplying the market. The market price is as low as it would be with many producers frequently lower.
Any attempt by a dominant firm to restrict its own supply and increase price after reaching a “dominant” position simply results in the expansion of output by other firms, the entry of additional firms, and loss of its dominance. A dominant firm can keep its dominance only by behaving competitively.
The fact that there is a dominant firm, or small group of firms, in an industry is evidence of competitive behavior not of monopolization.

via The Attack on Concentration: Newsroom: The Independent Institute.
05 Dec 2014 Leave a comment
https://twitter.com/EconBizFin/status/539937864234958851
HT: Jeremy Thorpe
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