Competition

Steven E. Landsburg

Chapter 7 in Price Theory and Applications, 2024, pp 207-276 from World Scientific Publishing Co. Pte. Ltd.

Abstract: A real organization called the Brotherhood for the Respect, Elevation, and Advancement of Dishwashers (BREAD) encourages restaurant patrons to leave tips not just for the servers, but also for the kitchen staff who bus tables and wash dishes. What will happen if this organization achieves its goals?In the short run, life will be better for dishwashers. They’ll collect tips, and they’ll probably decide to work additional hours to collect even more tips. But in the long run, people in other occupations — car wash attendants, grocery baggers, and others — will attempt to get on the gravy train. Restaurant kitchens will be flooded with job applicants, and the wages of dishwashers will be bid down. In fact, wages are likely to be bid down by the full amount of the tips — if tips amount to, say, $2 an hour, then wages fall from $8 an hour to $6 an hour. It turns out that respect, elevation, and advancement don’t show up in take-home pay…

Keywords: Microeconomics; Price Theory; Supply and Demand; Demand Curve; Adverse Selection; Budget Line; Indifference Curve; Common Property; Competition; Competitive Industry; Constant-cost Industry; Consumer Surplus; Producer Surplus; Social Gain; Social Welfare; Efficiency Criterion; Economic Efficiency; Cost; Price; Deadweight Loss; Price Ceiling; Tariff; Rationing; Quotas; Equimarginal Principle; Price Discrimination; Monopoly; Two-part Pricing; Two-part Tariff; Fishery; Collusion; Income Effect; Substitution Effect; Normal Good; Inferior Good; Giffen Good; Externality; Property Right; Coase Theorem; Transactions Cost; Law of Demand; Marginal Cost; Marginal Revenue; Marginal Value; Market Failure; Moral Hazard; Nash Equilibrium; Normative Criterion; Positive Economics; Oligopoly; Hayek; Social Cost; Economics of Information; Sales Tax (search for similar items in EconPapers)
JEL-codes: D D04 D4 L11 (search for similar items in EconPapers)
Date: 2024
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