Economics Dictionary of ArgumentsHome
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| Monopolistic competition: Monopolistic competition in economics is a market structure where many firms sell similar but differentiated products. Each firm has some control over pricing due to product differentiation, but there is significant competition. Barriers to entry are low, allowing new firms to enter the market. Examples include restaurants, clothing brands, and electronics, where products are not identical but serve similar functions. See also Monopolies, Monopoly price, Oligopolies, Competition._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Murray N. Rothbard on Monopolistic Competition - Dictionary of Arguments
Rothbard III 719 Monopolistic Competition/Rothbard: The theory of monopoly price has been generally superseded in the literature by the theories of "monopolistic" or "imperfect" competition.(1) As against the older theory, the latter have the advantage of setting up identifiable criteria for their categories - such as a perfectly elastic demand curve for pure competition. >Competition/Rothbard, >Monopoly price/Economic theories, >Monopolies/Rothbard. RothbardVs: Unfortunately, these criteria turn out to be completely fallacious. Essentially, the chief characteristic of the imperfect-competition theories is that they uphold as their "ideal" the state of "pure competition" rather than "competition" or "free competition." Def Pure competition: Pure competition is defined as that state in which the demand curve for each firm in the economy is perfectly elastic, i.e., the demand curve as presented to the firm is completely horizontal. >Elasticity, >Demand/Rothbard. Market/price/Rothbard: In this supposedly pristine state of affairs, no one firm can, through its actions, possibly have any influence over the price of its product. Its price is then "set" for it by the market. Any amount it produces can and will be sold at this ruling price. In general, it is this state of affairs, or else this state without uncertainty ("perfect competition"), that has received most of the elaborate analysis in recent years. This is true both for those who believe that pure competition fairly well represents the real economy and for their opponents, who consider it only an ideal with which to contrast the actual "monopolistic" state of affairs. Rothbard: Both camps, however, join in upholding pure competition as the ideal system for the general welfare, in contrast to various vague "monopoloid" states that occur when there is departure from the purely competitive world. RothbardVsPure competition theory: The pure-competition theory, however, is an utterly fallacious one. It envisages an absurd state of affairs, never realizable in practice, and far from idyllic if it were. In the first place, there can be no such thing as a firm without influence on its price. Rothbard III 720 The monopolistic-competition theorist contrasts this ideal firm with those firms that have some influence on the determination of price and are therefore in some degree "monopolistic." Yet it is obvious that the demand curve to a firm cannot be perfectly elastic throughout. At some points, it must dip downward, since the increase in supply will tend to Iower market price. As a matter of fact, it is clear from our construction of the demand curve that there can be no stretch of the demand curve, however small, that is horizontal, although there can be small vertical stretches. Rothbard III 721 Elasticity: Of course, the demand curve for each small wheat farm is likely to be very highly, almost perfectly, elastic. And yet the fact that it is not "perfect" destroys the entire concept of pure competition. For how does this situation differ from, say, the Hershey Chocolate Company if the demand curve for the latter firm is also elastic? Once it is conceded that all demand curves to firms must be falling, the monopolistic-competition theorist can make no further analytic distinctions. >Monopolistic competition/Harrod, >Oligopolies/Rothbard, >Pure competition/Rothbard. 1. In particular, see Edward H. Chamberlin, Theory of Monopolistic Competition, and Mrs. Joan Robinson, Economics of Imperfect Competition. For a lucid discussion and comparison of the two works, see Robert Triffin, Monopolistic Competition and General Equilibrium Theory (Cambridge: Harvard University Press, 1940)._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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> Counter arguments against Rothbard
> Counter arguments in relation to Monopolistic Competition
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