The final module of the Power of Markets course begins by further exploring firm behavior in imperfectly competitive market settings: how firms with monopoly power can increase profits through price discrimination; and the price-output combinations we can expect firms to select in cases of monopolistic competition and oligopoly. We will also analyze monopolies from an efficiency perspective and look at the effects of imperfect information on firm and consumer behavior. We will next turn to exploring input markets and what determines the demand for an input by a firm, an industry, and the overall market. We will also look at the factors that affect input supply and how the supply of an input interacts with demand to determinant input prices. We will use input market theory to analyze institutions and government policies such as the NCAA sports cartel, the minimum wage, Social Security, and immigration. Finally, we will address the concept of market efficiency and what government can do to promote it as well as how government intervention may diminish it.
Industry Determination of the Price and Employment of Inputs
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來自 University of Rochester 的課程
The Power of Markets III: Input Markets and Promoting Efficiency
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Week 11 - The Market for Inputs
The Supply of Inputs and the Determination of Input Prices.
與講師見面
Mark ZupanProfessor of Economics and Public Policy
Simon School of Business
Welcome back.
In the last session we looked at the supply curve for an input like labor.
And how it very much depends on if we're looking at the aggregate market, or
the supply in particular industry or particular firm.
What we'll do in this session is look at how the price and
employment of inputs gets determined in a particular industry setting.
And then if a variety of industries are bidding for the same input.
And we're assuming no difference across inputs, and
that wage is the only determining factor of where this
input is willing to be supplied to one industry versus the other.
How input prices get equalized and
employment levels get determined across industries.
So let's turn to figure 16.6.
And what we're looking at in panel A is one firm with its domain for
labor, and in panel B the entire industry.
Now across the industry the demand curve is the horizontal
summation of the individual firms' demand curves.
The marginal value product of labor curves,
which we found out in last week's sessions.
And just like in output markets, the equilibrium price and
quantity get determined by the intersection of supply and demand.
So in this particular case, a wage of $300 and
an overall employment level of 10,000.
And that price for the input,
that wage rate is essentially the price that the supply curve,
that an individual firm if accounts for only a small share it's stuck with.
It is a price taker in input markets.
And notice what would happen if the price of labor was lower than 300 per day.
Let's say the wage was $250, we'd have a higher quantity demand of labor,
L1, versus quantity supplied at that lower wage rate of L0, of L naught.
So there'd be excess demand,
there'd be pressure on the wage rate to rise if the wage was too low.
Notice another thing, that the wage rate that prevails,
ends up being determined by the productivity of the input.
So, people, in this case, laborers get paid what their marginal value product is.
And that price then ends up being again,
the price that individual firms are stuck with.
Now, how do prices of inputs higher levels get determined with
multiple industries within for the same input?
To see this, we're going to turn to figure 16.7.
And let's say we had software engineers that could go work either in
the aerospace industry or the telecommunications industry.
And let's assume initially that the wage rate prevailing in aerospace for
these engineers, was higher, WA $400,
than the wage rate telecommunications for the same engineers.
The engineers again,
there is no difference between the quality from one engineer to the other.
And the only thing that matters to them is the wage rate they get paid,
whether it's in telecommunications or aerospace.
If there's such a difference, and if initially
the employment level in telecommunications of 1,000 workers, and
500 in the aerospace industry.
And we're assuming those wage rates get determined by what we call
a momentary supply curve.
So in the case of aerospace, this is an unusual short run supply curve.
It's just at the moment,
the amount of workers being supplied to this aerospace industry, the engineers.
And similarly the momentary supply curve is SS
subscript t in the telecommunications industry.
What'll happen if there's this wage gap?
There's an arbitrage opportunity in this input market.
One solution will be workers engineers realizing,
look, I can earn more in aerospace.
Enough of them will start moving from telecommunications to aerospace
until that arbitrage opportunity gets extinguished.
And we're in this particular setting that happens,
is at a common way trade of $350 per day.
Notice what's happened, the momentary supply curve 200 worker have shifted from
telecommunication to aerospace, enough so that the wage rates are equalized.
Now, needn't be that laborers do the moving,
it could be that firms do the moving.
If there's a difference in what engineers are getting paid in aerospace.
If it's higher, it could be that aerospace firms move to locations
where currently workers are working in the telecommunications at a lower wage rate.
Labor doesn't necessarily have to do the moving,
the rest of the production process could come to labor.
But those movements will occur so long as there's this arbitrage opportunity.
What do I want to say?
And now we see this in cases like Citigroup a few years ago,
moved a lot of its credit card processing facilities to South Dakota, to be closer
to where there were workers that were previously working at a lower wage rate.
Currently we're seeing this in the shale oil businesses,
construction workers move from other states into places like North Dakota,
to take into account the higher wage rates that are prevailing in those markets.
Bottom line, industries when they're interconnected through inputs,
we'll see arbitrage opportunities lead to a movement of the input, or
movement of hiring of the input from one location to the other.
Until the input price for the same input is brought into line across the two
different, or the multiple different industries.
