They all have their own Kool-Aid flavor. The private sector, academia, the military, government, institutional religion, and intelligence: different rules, mechanisms, vocabulary, traditions, rewards, and hierarchies. And, they all entertain themselves with formulas that don’t work in the real world, where there are no “round cities“ and the rules are broken 10 times more often than they work. “Who can say the most profound things” vs “Who can do the most meaningful things, in the right way” is a big gap. Vanity, as Solomon said. Still, like football, cricket, and polo, it’s good sport. Carry on!
🥸🤭🧑🏽🎓🗣️
ISSUES DISCUSSED
Robert Barro, Hoover senior fellow (adjunct) and the Paul M. Warburg Professor of Economics at Harvard University, discussed “Markups and Entry in a Circular Hotelling Model.”
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
The Hotelling locational model and its adaptation to a circular city provide a core framework for industrial organization. The present paper expands the explanatory power of this model by incorporating a continuum of consumers with constant-elasticity demand functions along with stores that have constant marginal costs of production. The stores are evenly spaced in equilibrium.
The model generates an approximate formula in which the markup of price over marginal cost depends on the spacing between stores and a transportation-cost parameter but is independent of the elasticity of demand.
This result reflects pricing decisions by stores that factor in the threat of losing business entirely at the borders with neighboring stores. This model provides a theory of price markups that is an alternative to the familiar Lerner approach, which puts all the weight on the elasticity of demand.
See video
