Sunday, November 3, 2013

One more point on perfect competition (and why I think Don Boudreaux has been so confusing)

Textbook perfect competition really boils down to two things: (1.) nobody has market power, and (2.) nobody can earn an economic profit.

If  you are criticizing someone who is simply saying that most people have market power and lots of people can earn an economic profit, then don't be surprised when people think you are presenting a naïve perfect competition view in contrast to the way competition works in the real world.

1 comment:

  1. Caveat - depending on whom you talk to, homogeneous firms may not be an essential part of the perfect competition story. It probably isn't an essential part of the story in this context. If firms are heterogeneous, only the marginal firm(s) earns zero economic profit. All the others still earn economic profit.


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