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Showing posts with the label Bilateral Oligopoly

A Stylized Model of Innovation: The Dynamics of Capitalism

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Nicola Tesla There has been a debate in economics on whether innovation is exogenous (outside the economy) or endogenous (inside the economy).   This is another one of those dichotomies that obscures explanations of economic processes. This is a stylized narrative of the path of economic innovation, the dynamics of the modern, industrial economic system.   The resulting economic structure is mostly oligopoly, the domination of markets by large corporations. Innovation begins with public knowledge, often scientific or mathematical discoveries that do not seem to have any practical value.   Imaginary numbers, general equations of electromagnetism, the Second Law of Thermodynamics, Brownian motion, E=mc**2, the structure of DNA, the conductivity of solids, etc.   Eventually, scientists and inventors begin to see possible applications of this scientific knowledge.   In the 20 th century, they are often funded by governments that see possible military applications.   A

The Structure of the Economy: Bilateral Oligopoly

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DEFINITION OF A BILATERAL OLIGOPOLY Models of market structure assume that the demand side is represented by a large number of buyers.  The structure of the market, and the assumed market outcomes, depends on the number of suppliers and how they compete.  Suppliers either post one price or exploit their knowledge of buyer categories by using price discrimination.  Despite the comments about the key role of consumers in determining economic performance, consumers are fairly passive when the discussion focuses on imperfectly-competitive industries.  But many markets are not structured this way; the buyers are not passive consumers but large corporations that do not passively accept suppliers’ prices.  Net prices are actively negotiated.  These markets are often bilateral oligopolies. In a bilateral oligopoly the buyers are not an undifferentiated mass of consumers but rather a small number of purchasing agents or professional buyers representing large purchasers.   T