Local monopoly power
Monopoly isn't always or even mostly about multinational corporations. Many of the most signiificant monopolistic culprits are small sellers at the local level.
Contributed Content (0) and Suggested Materials (1)
Ask a Question
Prof. Cowen, you describe the situation in San Augustin Oapan as rather dismal. Why is it that the inhabitants remain there instead of moving to a nearby city such as Taxco? Also, if the residents of San Augustin Oapan simply had the practical ability to move, wouldn't that inhibit monopoly forces - even if they don't exercise that ability (the threat of competition functioning in the same way as competition)?
A large chunk of the village -- at least one third -- does spend at least half the year outside the village, selling their wares. That includes in Taxco. But good jobs in Taxco are scarce. The villagers for the most part are not literate, or only at a minimum level. Rent in Taxco is much higher. In the meantime, if you are back in the village you still face monopoly forces. Nonetheless the ability to buy canned goods on your own and transport them back does limit the price mark-ups. Note that the modes of transport are themselves not very efficient.
I'm struggling with the definition of monopoly. Seems everyone in the village is free trade in tinned food. Surly this is just down to cost of transport with supply and demand forces? If the one road was a toll road then that makes more sense.
You can get monopolies for all sorts of reasons. This appears to be just an example of a contestable monopoly. People may have too little time and too little cash, for example, to travel to the city and buy enough food to make it worth their while. An entrepreneur could put up with a little hardship and break the monopoly. But what if the local police chief was corrupt and confiscated any food being brought back - poor (corrupt) institutions would have rendered the monopoly incontestable. Of course, there would be examples where environment renders a natural monopoly ...