Creator: Gane, Samuel H. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 161 Keyword: Competition, Monopoly, Oligarchy, and Anticompetitive behavior Subject (JEL): G28 - Financial Institutions and Services: Government Policy and Regulation, K21 - Antitrust Law, and L40 - Antitrust Issues and Policies: General
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 360 Abstract:
Intellectual property protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. As the scale of the market increases, due either to economic and population growth or to the expansion of trade through treaties such as the World Trade Organization, this trade-off changes. We show that, generally speaking, the socially optimal amount of protection decreases as the scale of the market increases. We also provide simple empirical estimates of how much it should decrease.
Keyword: Monopoly, Innovation, Harmonization, Intellectual Property, and International Trade
Creator: Holmes, Thomas J. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 439 Abstract:
Does competition spur productivity? And if so, how does it do so? These have long been regarded as central questions in economics. This essay reviews the literature that makes progress toward answering both questions.
Keyword: Monopoly, Innovation, and Market power
Creator: Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 468 Abstract:
Fifty-eight years ago, Harberger (1954) estimated that the costs of monopoly, which resulted from misallocation of resources across industries, were trivial. Others showed the same was true for tariffs. This research soon led to the consensus that monopoly costs are of little significance—a consensus that persists to this day.
This paper reports on a new literature that takes a different approach to the costs of monopoly. It examines the costs of monopoly and tariffs within industries. In particular, it examines the histories of industries in which a monopoly is destroyed (or tariffs greatly reduced) and the industry transitions quickly from monopoly to competition. If there are costs to monopoly and high tariffs within industries, we should be able to see these costs whittled away as the monopoly is destroyed.
In contrast to the prevailing consensus, this new research has identified significant costs of monopoly. Monopoly (and high tariffs) is shown to significantly lower productivity within establishments. It also leads to misallocation within industry: resources are transferred from high to low productivity establishments.
From these histories a common theme (or theory) emerges as to why monopoly is costly. When a monopoly is created, “rents” are created. Conflict emerges among shareholders, managers, and employees of the monopoly as they negotiate how to divide these rents. Mechanisms are set up to split the rents. These mechanisms are often means to reduce competition among members of the monopoly. Although the mechanisms divide rents, they also destroy them (by leading to low productivity and misallocation).
Keyword: Monopoly, X-inefficiency, Rent seeking, and Competition Subject (JEL): F10 - Trade: General, L00 - Industrial Organization: General, and D20 - Production and Organizations: General
Creator: Bridgman, Benjamin, Qi, Shi, and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 519 Abstract:
The idea that cartels might reduce industry productivity by misallocating production from high to low productivity producers is as old as Adam. However, the study of the economic consequences of cartels has almost exclusively focused on the losses from higher prices (i.e., Harberger triangles). Yet, as the old idea suggests, we show that the rules for quotas and side payments in the New Deal sugar cartel led to significant misallocation of production. The resulting productivity declines essentially destroyed the entire cartel profit. The magnitude of the deadweight losses (relative to value added) was large: we estimate a lower bound for the losses equal to 25 percent and 42 percent in the beet and cane industries, respectively.
Keyword: Quota, Monopoly, and Cartels Subject (JEL): L60 - Industry Studies: Manufacturing: General, L00 - Industrial Organization: General, and L43 - Legal Monopolies and Regulation or Deregulation