Most of the private equity firms are investment vehicles with expertise in finance.
They buy firms that have not been performing well and push them to become more efficient.
If the takeover of 346 Microeconomics is successful, the private equity firm will need to make large profits to cover the interest payments on the debt.
The threat of a Managers generally doesn't like takeovers.
Large amounts of debt are required to finance a large payment to stockholders.
Management is put under more pressure to operate efficiently.
Competitive pressure on firms to maximize profits is placed by the threat of a corporate takeover.
I'm not going to talk about management theory in this place except to make you think about the problem.
I wouldn't present this broad outline of the monitoring problem without mentioning that the drive for efficiency isn't the only drive that pushes for efficiency.
Some people derive pleasure from efficient orga nizations.
Individuals like that don't need to be monitored.
If administrators are intentioned, they will hold down costs even if they aren't profit maximizers.
Some libraries and colleges fall into the category of nonprofits that operate as efficiently as they can.
Their success is built on their employees' pride in their jobs.
Some people have a taste for efficiency, and most economists don't deny that.
Economists believe that holding down costs without the profit motive takes stronger willpower than most people have because of their observation of people's actions.
It's not likely that real-world markets would be perfectly competitive.
Perfect competi tion assumes that individuals accept a competitive institutional structure, even though changing that structure could result in significant gains for buyers.
If you understand how the invisible hand, social forces, and political pressures push against each other to create real-world economic institutions, you can understand real-world competition.
Competition is a fight between the forces of monopolization and the forces of competition.
Let's look at some examples.
Competition pushed down prices and wages during the 1930s.
Many laws were passed to prevent unfair competition.
The unions were given monopoly powers so they could resist the pres and push down wages.
The Robinson-Patman Act made it illegal for large retailers to lower prices to the detriment of local mom-and-pop stores.
Wal-mart lost a court case in which it was accused of charging too-low prices in its pharmacy because of laws passed by individual states.
Agricultural markets have many of the conditions for perfect competition.
Not one country in the world allows a competitive agricultural market.
The United States has a lot of laws, regulations, and programs that prevent agricultural markets from working.
U.S. agricultural markets are characterized by price supports.
Markets that are perfectly competitive aren't allowed to exist.
There are many examples that can be found.
Our laws and social values don't allow perfect competition to work because the government emphasizes other goals.
Competition is prevented from operating when it affects the other goals that most people in society hold.
The movement away from perfectly competitive markets could have been predicted.
Competitive markets are only possible if suppliers and ers don't collude.
Economic theory says that if the cost of colluding and preventing entry is less than that amount, these individuals will collude.
The cost of organizing a protest is higher than the cost of colluding, so consumers accept the restrictions.
Suppliers rarely claim that the reason for the restrictions is to increase their incomes.
The net effect of restricting entry into a market is to increase suppliers' income to the detriment of consumers.
Competition doesn't exist, so don't think that because perfect competition doesn't exist.
Competition is fierce in the real world and the invisible hand is not weakling.
It is against other forces in the economy.
It is necessary to prevent other firms from entering the market for a monopoly to last.
It's almost impossible to prevent entry, and it's almost impossible for perfect monopoly to exist.
Some firms want to get some of the profit from Monopoly.
Firms will break down a monopoly if they can get some of the profit.
Potential competitors will lobby to change the law underpinning the monopoly if it is a legal monop oly.
Potential competitors will generally get around the obstacle by developing a slightly different product if the law can't be changed.
Say that you've found a better mousetrap.
Prepare to enjoy the life of a monopolist after patenting it.
To patent your mousetrap, you must submit the technical drawings of how your better mouse trap works.
Potential competitors have a chance to study your idea and see if they can come up with a slightly different way of doing things to avoid being accused of violating your patent.
In some cases firms don't apply for patents on new products because the information in the application spells out what's unique about the product.
Information can help market more than a patent will hurt them.
When trying to get a patent.
Competitors gather information when they go to the patent office.
All industries have variations on reverse engineering.
Consider the industry of clothing.
One firm tells its workers to go to top department stores on their lunch hour to buy the latest fashions.
The garment makers dismantle each garment into its component parts, make a pattern of each part, and sew up the original again after the workers bring the clothes back.
Two weeks after the firm e-mailed the patterns to its Hong Kong office, it received a shipment of garments that were almost identical to the ones the workers bought.
The firm sells this shipment to other stores at a lower price than the original.
Business people will tell you that competition is fierce and that profit opportunities are fleeting, which is a good sign that competition exists in the U.S. economy.
One's view of what government policy should be in relation to natural monopolies is based on the fight between competitive and monopolistic forces.
There have been calls for government regulation of natural monopolies to prevent their exploitation of the consumer due to the fact that they can make large profits.
Policy makers and economists have become less supportive of such regulation over the past decade.
They argue that competi tion works in other ways even in natural monopoly cases.
Sending TV signals through electrical lines is one of the ways that new technologies can compete with phone messages by satellite.
Competition and undermine natural monopolies are provided by new technologies.
When technological competition doesn't work fast enough, people direct their efforts toward government and political pressure is brought to bear either to control the monopoly through regulation or to break up the monopoly.
Natural monopolies are important for the economy because many of the dynamic companies are platform monopolies that have significant natural monopoly elements.
There is a virtual marketplace for trades to take place.
Replacing physical marketplaces with virtual marketplaces increases competi tion in the goods traded within the market enormously, but it also gives the provider of the market a monopoly that it can exploit.
As platform monopolies get bigger, their monopolistic position increases, making them natural monopolies, since the more people that use the market, the more useful it is.
The pressure to regulate natural monopolies has been strong in the past.
They've had to agree to have the price they charge and the services they provide regulated in return for the exclusive right to operate in an industry.
There are regulatory boards in most states.
Firms have little or no incentive to hold down costs when they are allowed to pass on cost increases.
In such cases, cost increases to earn a normal profit on those costs, they have little or no X- inefficiency develops with a passion, and such monopolies look for capital- intensive incentive to hold down costs.
Market structure projects will increase their rate bases.
It is almost impossible for regulatory boards to determine which costs are appropriate and which aren't.
Nuclear power plants were favored by regulated electric companies until they were told that some nuclear power plant construction costs could not be passed on.
Once regulation gets so specific that it's scrutinizing every cost, the regulatory regulations that set prices relative to process becomes extremely bureaucratic, which itself increases the cost.
Often regulatory boards are made up of volunteer lay people who start out with little expertise, and are exhausted or co-opted by the political infighting they have had to endure by the time they develop some of the expertise they need.
There is no easy answer to the problem in economics.
Monopolies believe that a monopoly right should never be granted because regulated monopolies inflate their costs so much and are inefficient and lazy.
The deregulation and competitive supply of both electric power and telephone services took place in the 1980s and 1990s.
Regulators are making these markets competitive by breaking down the layers of the industry into subindustries.
The power generating industry, the power line industry, and the power grid industry are included in the electricity industry.
Regulators can open the remaining parts of the industry to competition by dividing them up.
Let's take a closer look at the industry.
Independent local firms used to provide electricity to their own customers.
Electricity is supplied through a large grid that connects many regions of the country.
With this grid, electricity generated in one area can be sent all over the country, and suppliers can compete for customers in a variety of regions.
Many states have adopted provisions to open their electricity markets to multiple providers because of the grid.
The power line industry is not competitive.
Each company would have to pay for a separate power line into your house.
Natural line industry can be created by economies of scale.
The electrical power industry is not being deregulated as you will likely read in the newspapers.
The portion of the market where there is a chance of a compe tition is being deregulated.
Firms protect their monopolies by being motivated by profits.
It shows how the market economy adjusts to new demands in the real world.
Competition is not static.
Firms don't accept competition if they don't want it.
They spent money on maintaining their monopoly.
By making products that are hard to duplicate.
It means charging a low price that discourages entry if they don't take full advantage of their monopoly position.
Firms can make higher short-run profits by charging a higher price, but they forgo the short-run profits in order to strengthen their long-run position in the industry.
Q-9 What decision rule is expensive to create.
They will buy monopoly power until the marginal cost is equal to the marginal benefit.
Here is the probability that a lobbyist will be effective, here is the marginal cost, and here is the marginal benefit.
We are likely to get a lot of business if we do.
Here is the marginal cost and marginal benefit.
Here are the marginal benefits and marginal costs.