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From: rohn@randvax.UUCP (Laurinda Rohn)
Newsgroups: net.politics
Subject: Re: Inflation in a Free Economy?
Message-ID: <2274@randvax.UUCP>
Date: Fri, 25-Jan-85 16:12:21 EST
Article-I.D.: randvax.2274
Posted: Fri Jan 25 16:12:21 1985
Date-Received: Mon, 28-Jan-85 06:46:04 EST
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Organization: Rand Corp., Santa Monica
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> from  tim sevener   whuxl!orb
> Could persistent inflation and unemployment have anything to do with
> the fact that our current economy is dominated by relatively few
> oligopolistic corporations?

Perhaps.  But it could also have to do with the fact that there are
other oligopolies out there called labor unions.  Labor unions interfere
by setting an artificially high wage rate which is usually far above
the equilibrium wage rate that would exist without unions.  This raises
the price of labor to the goods producers, thus raising the price of
the goods to the consumer.  It also means that the producers can't
hire as many workers as they might otherwise.  Thus you have a few
workers who are employed making a lot of money, while a lot more workers
are unemployed making nothing.  Sounds like an unfair distribution of
wealth to me!

>                      The government did nothing to make sure that there
> were only 4 major auto companies in the US.  They accomplish such
> market control all by themselves.  How did that happen? And why?

One of the reasons is called increasing returns to scale.  In the case
of the auto companies, there are large fixed costs involved in setting
up an auto producing plant.  Once you have it set up, it's just as easy
to make a million cars as a hundred.  The only extra cost you incur is
the cost of materials and labor required to make the car.  This isn't
the case in, say, a home knitting operation, where there are very low
fixed costs and making the hundredth sweater isn't any easier than
making the first, and may in fact be harder (decreasing returns to
scale).

> Such conditions in which 3 or 4 firms control a majority of the market is
> true in many industries in the US.  And the number controlled in this
> way grows every day.  

This is because, as technology advances, more and more industries can
have increasing returns to scale.

> I praise Mr. Mc Kiernan's lucid exposition of monetarism and laissez faire.
> However, this is the real world in which oligopoly power grows daily....

Yep.  Big, bad oligopolistic corporations *and* big, bad oligopolistic
labor unions, too....


					Lauri
					rohn@rand-unix.ARPA
					..decvax!randvax!rohn