Re: [OPE-L] perfect competition

From: glevy@PRATT.EDU
Date: Mon Apr 17 2006 - 19:49:14 EDT

> Before radical economist call "perfect competition" by its right
> name, that is "perfect stagnation" - this fight is not over. There is
> not an iota of competition in "perfect competition" - only utter
> stagnation. From a welfare maximizing point of view "perfect
> competition" is definitely not a place we want to be.

Hi Anders,

Yes, I agree with you about the pernicious effects of assuming
perfect competition (p.c.). You highlight the consequences of assuming
p.c. in macroeconomics. But, the consequences of assuming p.e. are
equally -- if not more -- mis-directing when we look at the dynamic
processes at work in individual branches of production.  For instance,
the marginal utility theory of consumer choice & the doctrine of
consumer sovereignty assume p.c.  So long as this market structure is
assumed, the dynamics at work in individual markets and the relation
between firms and consumers remains mystified.  For example, in p.c.
there is no advertising or marketing -- indeed, it is viewed as
'wasteful' and redundant because perfect information on the part of
consumers about the prices and qualities of commodities is assumed in a
p.c. market. These assumptions obscure the real relations at work in the
marketplace and lead to the fantasy that consumers control the
marketplace and issue firms their marching orders through their consumer
purchases! When these very restrictive assumptions are dropped, a very
different picture emerges about who controls whom and how in the
marketplace.  I think radical economists often underestimate the merit
of a critique based on the challenging of assumptions. Is p.c. an
'internally consistent' theory?  Who cares? -- it fails a larger, and
most significant, test since it precludes an adequate grasp of
the subject matter.

In solidarity, Jerry

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