The competitive process is fundamental in economics, although it is extremely difficult to define under a universal definition due to the various views laid down by different theories. While the standard theory concentrates on market structure and strategic behaviour, the Austrian School focuses on market dynamics and entrepreneurship whilst the post- Keynesian school directs its attention to the areas surrounding dominant firms and administered prices. This essay will attempt to compare and contrast Austrian and post-Keynesian criticism of the standard neoclassical view of the competitive process.
‘The neoclassical theory of the firm considers four main theoretical market structures: perfect competition, monopolistic competition, oligopoly and monopoly.’ (Lipczynski, Goddard and Wilson, 2001) According to Lipczynski (2001)‘the models of perfect competition, monopoly and monopolistic competition describe how firms should set their output levels and prices in order to maximize their profits, under various sets of assumptions concerning market structure.’ Regarding the competitive process, the neoclassical theory of the firm and the ‘analysis of competition in the theory is contained in the model of perfect competition, which describes the ideal conditions that must hold in the market to ensure the existence of perfectly competitive behaviour from the typical firm and, by extension, the characterisation of the industry as competitive or not.’ (Tsoulfidis, 2011) Additionally, in standard theory, all observed market structures could be compared to the perfectly competitive equilibrium and outcome.
Perfect competition involves large numbers of buyers and sellers and products sold have to be identical, with the firms’ intention to ma...
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...to outdo each other to become dominant firms in the market.
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Lipzynski, J., Wilson, J., and Goddard, J., 2001. Industrial Organisation: Competition, Strategy and Policy, London: Pearson Education Limited
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Rivalry among established firms is fierce. There are several factors that illustrate this: established market players (6.1). The product is highly standardized and the switching costs of the customers are low. Players are aggressive (6.2)
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3E. Peshine Smith, A Manual of Political Economy, Henry Carey Baird, Philadelphia, 1872, p. 16.
Carnegie states, “Under the law of competition, the employer of thousands is forced into the strictest economies, among which the rates paid to labor figure prominently, and often there is friction between employer and the employed, between capital and labor, between rich and poor” (393). It is this competitive nature which allows the hardest working individuals to rise above their peers, create personal wealth and continue to accumulate wealth. Competition is a beneficial to capitalism. A company can produce an item and sell the
Moggridge, Donald. ed. 1980. The Collected Writings of John Maynard Keynes: Activities 1941-1946. London: Macmillan.
Arestis, P., & Sawyer, M. (2010). The return of fiscal policy. Journal Of Post Keynesian Economics, 32(3), 327-346. .
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
ROBINSON, Joan (1965b). “The General Theory after Twenty-Five Years”. Collected Economic Papers, vol. III, pp. 100-2.
The Perceived Demand Curve for a Perfect Competitor and Monopolist (Principle of Microeconomics, 2016). A perfectly competitive firm (a) has multiple firms competing against it, making the same product. Therefore the market sets the equilibrium price and the firm must accept it. The firm can produce as many products as it can afford to at the equilibrium price. However, a monopolist firm (b) can either cut or raise production to influence the price of their products or service. Therefore, giving it the ability to make substantial products at the cost of the consumers. However, not all monopolies are bad and some are even supported by the
My research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian Economics is what is best for America.
A perfect competition and a monopoly are two very different and unique market structures. Under monopolies firms get normal profits only in the short period, but disappears in the long run. Monopolies come with strong barriers to enter and exit the market. Under a monopoly, a monopolist can charge different prices and no one can complain because everything is being ran by one big business. In a monopoly the average revenue curve slopes downward, and the demand curve is very inelastic. Both monopolies and perfect competitions want to maximize profits, although monopolistic prices are usually higher. A pure monopoly is rare like a perfectly competitive market, but there are elements of monopolies in some markets. In this paper I will go into detail about both of these markets.
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
A simple change of Marxist analysis to a method proposed by Keynes would not give any result, because as has been said, monopoly is not supposed to be included, since Keynesianism examines only the macroeconomic processes and does not consider the issue of monopolization of certain markets and dominance in the economic structure of different types of oligopolies.
In a world of free trade, growing competition and accessibility to foreign markets, the need for methodical market analysis and assumptions is steadily rising in today’s business environment. It is just a normal way of thinking to primarily intent to eliminate the financial before entering a new and foreign market. This suggests that enterprises have to develop an overall strategy for their business in order to gain competitive advantage and consequently market share. With the words of Michael E. Porter, professor at Harvard University and leading authority on competitive strategy, this desirable market success is indirectly linked to the individual structure of a market. The unique structure of a single market influences the strategic behaviour and the development of a competitive strategy within a firm. The competitive strategy finally decides whether a company performs successfully on the market or not. Referring to this interpretation of business success, M. E. Porter established his five forces framework that enables directives to gather useful information about the business environment and the competitive forces in industries.
The four market structures: perfect competition, monopolistic competition, oligopoly, and monopoly entails various characteristics that exemplify the level of competition within the market. These distinct features include having a number of sellers, producing a homogeneous or differentiated goods or services, pricing power, a level of competition, barriers to entering or exit the markets, efficiency, and profits. Due to the high profit and revenue some firms face within the various market structure, barriers to entry are put in place to restrict new competitors from entering. Natural, artificial, and governmental barriers play a vital role in firms ability to stay in a market, be productive, efficient, and competitive. Firms reaction to price changes, the government’s ability to create a price, and the influence of international trade on the market structures, are essential factors that economist evaluate the various market structures. Overall, the competition between market structures may not always result in the same outcome, due to the behavior and interaction between consumer’s and buyers, but in the end, both the buyer’s and seller’s are needs are