tag:blogger.com,1999:blog-8705432279177203509.post7352050387892778166..comments2024-03-19T04:04:16.798-07:00Comments on Budd's Blog: Corporate MedicineBuddhttp://www.blogger.com/profile/03893224951099943306noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-8705432279177203509.post-59278862178887422932010-07-25T10:10:58.874-07:002010-07-25T10:10:58.874-07:00One of the lessons I learned from graduate school ...One of the lessons I learned from graduate school microeconomics is that "friction" or inefficiencies in the market allow for the accumulation of profits. In classical economics free entry and exit from a market eliminates all profits. The fact that there is profit anywhere in the system to me does not reflect that the system isn't working, but that there is not free entry or exit from markets and / or that there is significant delay in entry or exit owing to the fact that information, human capital, physical capital, and financial capital do not flow freely or instantaneously. <br /><br />There is always "friction" in the the free flow of resources and information some of which is deliberately engineered by interested parties (professional barriers to entry and lobbyists come to mind). <br /><br />When any company or industry makes persistent profits it is fair to say that the market is not working, but at any given point we will always see above average profits at various places in the market place, as well as its opposite -- higher than normal rates of failure.<br /><br />Corporations may prefer to do business with other corporations, but they also benefit from the asymmetry of larger entities (e.g., insurance companies) dealing with smaller entities (e.g., physician groups) who are prevented from negotiating collectively. (I learned this from your subsequent post on this blog.)<br /><br />Not trying to be critical at all, I love the exploration of these topics that your blog encourages, but I don't quite understand how these two points reconcile.Aaronhttps://www.blogger.com/profile/12730467655417305993noreply@blogger.com