NAFTA Years Later

[Kidlicious]

Re: Re: Re: Re: Re: Foooooore!

Originally posted by Master Zen
Well, the monopoly power would of course be used to drive out competition. Thus, monopolies produce at a price low enough that no potential competitor can compete with, yet much higher than what they could if they were playing at MR = MC.

I agree with you where there are significant barriers to entry, but when those barriers don't exist I think firms with monopoly power tend to have low prices to create a type of barrier.

Originally posted by Master Zen
My idea, beneath all this theory is that all industries pick up a certain degree of monopoly power (and this is actually consistent with neo-classical theory as perfect competition would disable firm entry to the market altogether) and that there is more or less an agreement on prices through a certain range of firms within the industry.

I agree with that.

[Kidlicious]

Originally posted by Master Zen
Yes, I'm a sucker for institutionalism

One of my profs was into institutionalism. Usually he lost me. It's very complicated.

[Master Zen]

Re: Re: Re: Re: Re: Re: Foooooore!

Originally posted by Kidicious

I agree with you where there are significant barriers to entry, but when those barriers don't exist I think firms with monopoly power tend to have low prices to create a type of barrier.

Thats what I was referring to. Low enough prices so rival firms don't enter, but high enough that they still get as much monopoly benefits as possible. Evil, those monopolist, ain't they?

-MZ

[Master Zen]

Originally posted by Kidicious


One of my profs was into institutionalism. Usually he lost me. It's very complicated.

None my professors has been a true insitutionalist. I picked up the theory thanks to a friend which recommended me some Douglass North books. Since then, I've been hooked.

If you live in a country like Mexico, you'll end up being an institutionalist. Ask MtG

[Arrian]

Care to explain, in simple layman's terms, what "institutionalist" means?

-Arrian

[Imran Siddiqui]

Low enough prices so rival firms don't enter, but high enough that they still get as much monopoly benefits as possible.

Well it wouldn't be that way exactly, would it? I mean, monopolists would charge a very low price (below where it would even be profitable at all) in order to drive the current competition out. Then when they are gone, the monopolist will raise their prices to monopoly level again. Future competitiors will learn the lesson and won't try to jump in.

It's a shifting price, not a single price. Because even a price which is a smidge profitable will result in competitors (at least one) entering the market.

[Kidlicious]

Originally posted by Imran Siddiqui

Low enough prices so rival firms don't enter, but high enough that they still get as much monopoly benefits as possible.

Well it wouldn't be that way exactly, would it? I mean, monopolists would charge a very low price (below where it would even be profitable at all) in order to drive the current competition out. Then when they are gone, the monopolist will raise their prices to monopoly level again. Future competitiors will learn the lesson and won't try to jump in.

It's a shifting price, not a single price. Because even a price which is a smidge profitable will result in competitors (at least one) entering the market.

I don't think they can just change their prices like that. They can lower their prices or keep them constant. But increasing them damages their consumer relations.

[Master Zen]

And you are also assuming that market entry is easy and automatic, which contrary to theory it is not...

[Arrian]

Depends on the industry, obviously. Some industries are relatively easy (cheap) to enter. Some are extremely difficult (expensive).

-Arrian

[Master Zen]

Originally posted by Arrian
Care to explain, in simple layman's terms, what "institutionalist" means?

-Arrian

Basically the institutionalists (of which I consider myself one) believe that the problems (and solutions) of the economy are not due to monetary, macro, or micro issues but rather because of the institutional framework in which the country finds itself. Thus, the legal system for example, is a major actor in the economic system as it dictates what works and what doesn't.

Example: you have spring breakers coming to mexico and trashing hotel rooms, doing public rowdiness etc. and you have Mexican citizens coming to the US and acting nice, polite, and obeying the law. Why this sudden change of behaviour? Because the US citizen knows for the most part nothing will happen to him if he does this, and the Mexican knows he will get arrested for jay walking and sentenced to death in Texas... thus, the institutional framework generated a modified behavour for these people.

There' A LOT more to this theory but I have to go and can't explain it all...

-MZ

[Dinner]

You have to remember the spring breakers are to young to drink in the US and they are going to Mexico for the express reason of getting shirt faced, high, and laid. If I recall from my college trips to Mazitlan and Cancun the locals were actually very happy to have the drunken teenagers stumbling around because having them do that meant the tourist economy was healthy and people would have jobs.

Personally, I wouldn't want to put up with them but several of these cities in Mexico have purposefully promoted themselves as "party towns" just so they can carve out a niche in the tourist business and seporate drunking teenage Gringos from their (well their parents) hard earned cash.

[Adam Smith]

Originally posted by Master Zen Basically the institutionalists (of which I consider myself one) believe that the problems (and solutions) of the economy are not due to monetary, macro, or micro issues but rather because of the institutional framework in which the country finds itself. Thus, the legal system for example, is a major actor in the economic system as it dictates what works and what doesn't.

A Lot of Douglas North's arguments are that certain institutions were more economically efficient and therefore led to greater economic development.

One example was the English vs. French legal system. The English system provided greater protection of property rights from expropiration by the state, thereby leading to greater capital investment. Part of this stemmed from the Magna Carta roots versus the centralization of French monarchy.

Another example I seem to remember North mentioning was the collection of taxes in specie versus in labor or in kind. IIRC, collection in specie afforded the state greater spending flexibility, and also allowed the development of larger holdings and more efficient land tenure. Interestingly, this same system of tax collection seems to have hindered China's growth, leading to powerful absentee landlords, tax evasion, and greater corruption.

[MichaeltheGreat]

MZ - I've been more or less an intstitutionalist for a long time before I moved south.

Oerdin - like a lot of mixed-bag economic activities, the enthusiasm for turistas, especially spring-breakers, depends on a combo of your benefit from their spending and their impact on you.

If you have a purpose-built party town like Cancun, where the locals primarily moved there to work in the related industries and they live in separate areas, it's one thing.

Most of the other towns it's much more mixed. Border towns like Tijuana and to some extent Rosarito are problematic, because a majority of both workers and residents do not benefit from the activity. In the summers, Rosarito has signs up in English pointing out that pissing in the streets and fighting in the streets is against Mexican law.

Tijuana has a million and a half people or more, and three main, closely connected areas for gringos - Av. Revolucion, la Zona Norte for hookers, and the border/Rio zone from Pueblo Amigo to the various clubs down Paseo de los Heroes. The area of negative impact is more widespread than the area of positive impact, and it's really primarily the club owners, working girls, and a few others who benefit - the average guy working in a gringo club or girl in a lap dance place doesn't make a hell of a lot more, or have much better opportunity than they would in a non-gringo turista job. The places themselves are eyesores, the neighborhoods they're in acquire a special sort of greasiness, and the border traffic impact is a pain in the ass for everyone.

In that respect, it's not too much different than something like, say, a slaughterhouse. There's an economic benefit to some groups, but it's nothing you want to live next to.

[Kidlicious]

I understand Institutionalism as far as AS explained it, but if you try to explain why one tax system worked in England, but didn't work in China I'll get lost.

[HershOstropoler]

Originally posted by Master Zen

Anyway, the "answers" which I was referring to were actually in the institutional framework which these countries were in, IMO that explains development much better than any other.

Yes, I'm a sucker for institutionalism

What do you think of de Soto's The Mystery of Capitalism? I haven't come around to reading it, but the opinions on it range from genious to total crap. Curious what an econ guy from Latin America thinks.