Don,
To summarize my understanding so far, assuming a monopoly supplier of a consumer good -
The individual consumers each have their own subjective preferences for that particular consumer good, other consumer goods, and money. In the aggregate, this results in a price vs. demand curve for that particular consumer good which has a point at which maximum revenues are generated by the supplier. This point (PEAK) defines a price, volume exchanged, and revenues generated. The monopoly supplier may not always be able to set the price at PEAK for various reasons.
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Suppose further that the manufacture of this consumer good requires a nonspecific factor of production (NFOP) and a specific factor of production (SFOP).
The price of the NFOP is determined by the marginal buyer of that NFOP, which may or may not be (but likely is NOT) the monopoly supplier of the consumer good.
The price of the SFOP is directly imputed by the monopoly supplier of the consumer good, since no other buyers of that SFOP exist (although numerous sellers may exist). It will be determined from bargaining between the single buyer of that SFOP and the marginal seller of SFOP.
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For the monopoly supplier of a consumer good, charging a price higher than PEAK quickly results in a sharp drop in total revenues. Since the price of the NFOP is set by other buyers, the only real bargaining power the monopoly consumer good supplier has is in the buying of the SFOP. The difference between the price at PEAK and the price of the NFOP (and all other NFOPs if applicable) is what remains to buy the SFOP. If the price of the SFOP were greater than this difference, the monopoly supplier of the consumer good could not stay solvent, because if it tried to set consumer good prices higher than PEAK, it would quickly slide down the price vs. revenues curve.
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Summary -
The monopoly supplier of a consumer good usually only has bargaining power over SFOPs and thus, the subjective valuations of consumers set the price of the consumer good and therefore the SFOPs.
That is not to say that the subjective valuations of consumers do not also set the prices of NFOPs, but rather that in the case of NFOPs, the marginal buyer of that NFOP will be the 'middleman' through which this happens.
In the case of SFOPs, the marginal buyer of the factor of production is the monopoly supplier of the consumer good.
Wildstar |
