Long-run equilibrium and total expenditures in rent-seeking
The lure of excess profits or rents associated with monopoly power gives rise to expenditures to obtain these rents. Competitive rent-seeking behavior is recognized as a factor which must be included among the wastes associated with monopoly power (Tullock, 1967; Posner, 1975).1 The expenditures are aimed at transferring wealth rather than its creation, and the use of resources to obtain this transfer is a loss to society. How important rent-seeking is as a part of the total monopolistic waste hinges on the size of the total expenditures induced by a given level of excess profits.
KeywordsMarginal Cost Total Expenditure Monopoly Power Individual Expenditure Perfect Competition
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- 1.Competition as used here refers to rivalrous behavior which implies that a degree of influence can be exerted by each participant in determining the outcome; this is markedly different from perfect competition, where each is powerless to affect the price (see McNulty, 1968).Google Scholar
- 3.See, for example, Varian (1978: 60).Google Scholar
- 4.The variation of profits with r can be determined by taking the derivative, d/dr (P(n +r—nr)/n 2 ). This result in P(1-n)/n 2,which indicates a negative relationship between profits and r,the marginal cost, for n/1. Google Scholar
- 5.More exactly, it involves the time for the number of players necessary to obtain equilibrium to be informed.Google Scholar
- 6.This would occur where an innovator could not capture the total consumer’s surplus of a newly introduced product.Google Scholar