Market Organization and Competitive Equilibrium

Abstract

The market (or better, markets) is any system that facilitates exchange. It is therefore a necessary condition for economic activity, as well as the subject matter of economic science. The theoretical analysis of markets, pioneered by classical economists (Walras, 1874, Edgeworth, 1881) and continued by Marshall (1890), culminates in the precise model of perfect competition (Arrow and Debreu, 1954). The competitive model postulates that participants in the market decide the quantities that they wish to buy or sell according to the market price, which each participant takes as given. A price is an equilibrium price if the buying and selling plans of the various participants are compatible.