Friday, December 20, 2013

Monopolies Aren't All Bad

Profs. Kevin Murphy, Edward Snyder and Robert Topel of the University of Chicago have written about some of the results of bargaining between big businesses and their customers. Big businesses often offer volume discounts, quote nonlinear prices and give loyalty incentives to customers, all mof which can encourage customers to purchase more, perhaps in a quantity similar to what they would buy in a more competitive market with lower prices.

If this bargaining view of monopolies is correct, then the standard view of big business has exaggerated the degree to which dominant sellers harm the economy.