Abstract
Two views about competition exist. The first sees competition as a process for allocating resources to their optimal uses. The price mechanism is the instrument for achieving this goal, and when it functions properly equilibria emerge with prices equated to marginal social costs of production. When it malfunctions, equilibria exist with some prices above marginal costs, and society suffers a welfare loss from the under-consumption of these goods. Such malfunctions are usually attributed to an insufficient number of buyers or sellers. Monopoly is seen as the antithesis of competition. Thus, under the first view, competition is seen as a process for determining prices and quantities, the allocation of resources for a given set of tastes and technological opportunities. At its zenith, competition produces an equilibrium set of prices which induce a Pareto optimal allocation of the economy’s goods and services. Such equilibria are anticipated so long as monopolistic elements are absent.
This chapter pulls together material from chapters 1, 3,11 and 12 of my book The Dynamics of Company Profits (Cambridge University Press 1990). Chapter 11 was written by Hiroyuki Odagiri and Hideki Yamawaki. Chapter 12 is coauthored by Paul Geroski and myself.
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© 1992 Dimitri B. Papadimitriou
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Mueller, D.C. (1992). The Persistence of Profits. In: Profits, Deficits and Instability. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-11786-4_6
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DOI: https://doi.org/10.1007/978-1-349-11786-4_6
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