The monitoring problem has implications for economics.
Competition should be seen as a process, not a state.
Discuss how firms protect monopoly.
We've seen some nice models, but they don't fit reality.
Real-world markets aren't perfect.
The monopolistic competition and oligopoly models in previ ous chapters come closer to reality and provide some important insights into the "in-between" markets, but they fail to capture aspects of the actual nature of competition.
I give you a sense of what firms, markets, and competition are like in this chapter.
This chapter shows how economists' modern models differ from traditional textbook models and discusses an issue that is very much in the news.
Competition is for winners.
Business is not the opposite.
A monopoly is earned by solving a unique problem.
The goal of all businesses should be to create a monopoly for themselves, and that successful businesses are constantly working towards that end, according to Thiel.
Other companies are simultaneously building up their own monopolies, some directly affecting you, and others affecting you in a roundabout way.
You die if you don't continually improve and integrate new technology.
In your business strategy, you are constantly thinking about how to fight off competition and strengthen your monopoly.
This view of competition is different from the view students get from introductory economics books.
Competition on one end and monopoly on the other form the basis of the textbook view.
monopolistic competition is turned inside out by Thiel's view of the world.
Dynamic monopoly is the only market structure.
The process view of competition is not unique to Thiel.
All types of economists, including me, view competition as a process, and discussions of the competitive pro cess have a long history in economics.
The introductory economics course is built around neat simple models that don't fit into neat simple discussions of the competitive process.
The process view of competition in which the market is seen as composed of dynamic monopolies can't be captured in such models.
In this chapter, we get out of the formal modeling mode and think about competition as a dynamic process, and then relate that thinking back to our models.
Talking about the driving force of most businesses is needed to introduce the concept of dynamic monopoly.
Most people start businesses because they want to solve problems and achieve goals.
Businesses that solve problems for their customers at a lower cost than their competitors benefit society.
Customers are paying for their product.
Benefiting society makes you feel good.
The profits are nice, but for most entrepreneurs, it's not a profit at all, it's a freedom to make their own decisions and feel good about themselves.
For dynamic monopolies, even those run by a single individual, profit maximization is not an especially good assumption to capture their goals.
The profit goal is not highlighted by the standard model.
Short-run profit is not the focus in a dynamic context.
Why isn't profit maximization an profit is.
Even if firms are profit maximizers, their primary concern is not short- especially good assumption to make run profit, but rather long-run profit.
200 corporations in the United States are essentially con or given to individuals when a corporation is formed.
If you own stock, you can troll by managers and have little effective stockholder vote in the election of directors.
The goal of business control is assumed by economic theory.
Most stockholders want to maximize profits and have little input into the decisions that corporations make.
Most corpora holders made the decisions.
Managers don't have the same incentives as owners who run them for their own benefit.
There's also for the owners.
Pressure on managers to maximize the owners' control of management profits can be limited.
A large percentage ofcorpora firms deal with this problem and they don't have control over tions' stock.
Financial institutions that invest indi price encourage them to worry about the price of viduals' money for them and by the way, many companies give owners; instead, it is controlled by financial institutions their managers stock options--rights to buy stock at a low such as mutual funds.
The institutions that hold people's money for them until it is to value of company ownership, decrease profits per share, be paid out to them upon their retirement, are diminished by these stock options.
The owner and can give managers an incentive to overstate profits is another step removed from individ through accounting tricks.
In the early 2000s, 80 percent of the largest Xerox was shown in studies.
Firms spend millions of dollars to improve their reputations.
Firms want to be known as good citizens.
Even if short-run profit is reduced, reputation and goodwill expenditures can increase long-run profit.
In its first decade, Amazon didn't make a profit.
The difficulties with the profit-maximizing assumption are increased when firms are no longer run by a single individual.
It doesn't take place in owner-operated businesses, but in large corporations.
The decisions about what the firm does are not made by those who get the profit.
Signing a proxy statement is the same as directing the company they own to maximize profit.
Economic theory says that self interested decision makers have little incentive to hold down their pay if someone sees it.
The cost of the firm is their pay.
The firm's profit will be lower if their pay isn't held down.
Managers are expected to make at least a predesignated level of profit.
To explain why CEOs are paid more today than they were 30 years ago.
They argue that the demand for top 250 times that of what an average worker receives is higher today than it was 30 years ago.
It has been suggested that CEOs are greedy and that they make small differences in CEO.
That's performance matters a lot.
It's probably true that CEO talent is in short supply, but it doesn't explain why the supply curve for before is highly inelastic because CEOs are paid so much more today.
We have to look at who gets very high pay.
Replacing another place for an answer.
Workers' pay is being held down by competition and out of $60 million.
This means that today is large.
The number of ing, the amount of money CEOs are paid, is not restrained by outsourc CEOs.
Back in the 1980s, large firms increased, which caused labor unrest, and today it demands for CEOs more than ever.
If true, this explanation offers a policy suggestion for those who feel that the CEOs aren't deserving of their York University degree: make the income tax more progressive.
If one makes the income tax more mine pay of CEOs, it will have little effect on the quantity, because unconstrained supply and demand forces deter supplied significantly.
There is a problem in applying the model to the real world.
The text book economic model assumes that people are motivated by self-interest.
In the textbook model of the firm, the assumption is made that firms composed of self-interest-seeking individuals are profit-seeking firms, without explaining how self-interest-seeking individuals who manage real world corporations will find it in their interest to maximize profit for the firm.
The problem was introduced in an earlier chapter.
It's costly to see that an employee does the owner's bidding because the employee's incentives are different.
If it's too costly to monitor the managers to make sure they do what's in the structure of the firm, owners will only maximize firm profit.
If the structure of the firm requires them to do so, self-interested managers are interested in maximizing the firm's profit.
High-level managers can make a lot of money if appropriate monitoring doesn't happen.
The CEO of Charter Communications was paid $98 million.
That is a difficult question.
One way to arrive at an answer is to compare U.S. managers' salaries with those in Japan.
Banks in Japan have a lot of control over firms' operations.
This suggests that high managerial pay in the U.S. is due to a monitoring problem inherent in the structure of corporations.
There are other perspectives.
Real-world firms often have complicated goals that reflect the structure of the system.
One of their goals is profit.
Incentives are designed to get managers to focus on profit.
Firms tend to focus on intermediate goals.
Many firms focus on other intermediate world firms for growth in sales, at other times they institute cost reduction goals such as cost and sales.
Many, but not all, real-world corporations are described in this term.
Firms faced mostly domestic competition when Robinson came up with the term.
Firms are a bit less lazy now that they are facing more and more global competi tion.
The lazy monopolists don't push as hard as they could to hold down their costs because they see to it that they make enough profit.
They are consistent with keeping their jobs.
Firms with monopoly positions don't make large profits.
If X-inefficiency becomes bad enough, their costs may rise because of ineffi ciency, or they may simply make a normal level of profit.
The standard model assumes that the owner of the firm makes all the decisions.
The owners of firms who receive the Q-4 would like to see the costs held down because they only want the profit.
Most real-world firms don't operate that way.
Managers are hired to make those decisions.
Managers don't have the same incentive to hold down costs.
It isn't surprising to many economists that managers' pay is usually high and that high level managers see to it that they have "perks" such as chauffeurs, jet planes, ritzy offices, and assistants to do as much of their work as possible.
Until the firm reached a minimally accept able level of profit, the lazy monopolist would allow costs to increase.
The cost inefficiencies eat up the rest of the potential profit.
The degree of competitive pressures a firm faces limits its laziness.
All economic institutions need to make enough money to cover their costs.
They can translate the monopoly profit into X-inefficiency, which will benefit the managers and workers in the firm, but they can't be more efficient once they've done so.
They would close their business.
If all individuals in the industry are lazy, then competitive pressures won't affect their profits.
It is not absolute.
If an industry is opened up to international competition, the lazy monopolists can be squeezed and must undertake massive restructuring to make themselves competitive.
Many U.S. firms have undergone restructur ing in order to be more competitive.
Private equity firms have done many takeovers in recent years.