Friday, June 03, 2005

Lots of Angry Bear goodness

I continue to enjoy Angry Bear. Lots of good points to discuss. Let's go through a few.

This post on whether or not the government should maintain competition in the market for super premium ice-cream highlights exactly the key question in anti-trust law: what is the market?

It is often very very difficult to say exactly what the market is and therefore predict if a reduction in the number of market players will result in consumer benefit (from economics of scale and lower production cost etc) or harm (higher prices through monopoly power). Suppose there was only one brand of super-premium ice-cream? Is merely fairly-premium ice-cream a close enough competitor to maintain a elastic demand curve? How about other super-premium desserts, like super-premium cakes? Should they count? And even if neither of those count much, is it easy enough to enter the super-premium ice-cream market that monopolistic prices will be competed away soon enough by a new competitor that currently does not exist?

Even used goods can count as competition. U Chicago economist Kevin Murphy once told me about a lone mining equipment manufacturer that did not enjoy monopoly power because of the second hand market for their own machinery.

This question on reconciling the labor market is also very interesting:
The labor market is indeed weak, by any number of measures. The demand for labor is unusually low for this point in the business cycle.

According to household surveys, relatively few people consider themselves to be "unemployed", and surprisingly few non-working people say that they would like to work if they could.
The point is that salaries seem to be 1) stable and 2) trailing productivity (indicating a weak labor market) but unemployment seems to be low, and those who are unemployed seem to be unemployed voluntarily (indicating a strong labor market). Maybe we have a balanced labor market, where demand is not strong enough to make the happily unemployed switch, but weak enough to not give current workers much bargaining power over compensation (most of which, btw, seems to be sucked up in health insurance).

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