A Pure Theory of Aggregate Price Determination Masayuki Otaki
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Introduction to Competition Analysis1 Introduction
CUTS INTERNATIONAL 7UP3 PROJECT NATIONAL TRAINING WORKSHOP ON COMPETITION POLICY AND LAW INTRODUCTION TO COMPETITION ANALYSIS1 INTRODUCTION Competition analysis is at the core of the implementation of competition policy and law since it involves the identification, investigation and evaluation of restrictive business practices (RBPs) for the purposes of remedying their adverse effects. Without a proper competition analysis, and a dedicated competition authority to undertake such analyses, it would not be possible to effectively implement even the best competition policy and law in the world. This paper briefly outlines the basic concepts of competition before discussing in more detail the process of competition analysis, covering issues such as: (i) market definition; (ii) entry conditions; (iii) competition case investigation and evaluation; and (iv) remedial action. The paper also discusses a case study on a competition case handled by the competition authority of Zimbabwe, which illustrates the practical application of the various concepts discussed. BASIC CONCEPTS OF COMPETITION The concept of competition is a difficult and complex one, but one has to get a grasp of the issues involved in order to understand and appreciate its analysis. There is no singular concept of competition. It is therefore hardly surprising that the term ‘competition’ is defined in very few, if any, competition legislation of both developing and developed countries. Schools of Thought on Competition There are a number of different uses, definitions and concepts of the term ‘competition’ depending on who one is and what purpose one wants to use the definition for2. Consumers, business persons, economists and lawyers all use different concepts and definitions of competition. -
General Equilibrium Theory and Welfare Economics: Theory Vs
General Equilibrium Theory and Welfare Economics: Theory vs. Praxis The development of economic thought after World War II has been nothing short of protean in character, yet it can be traced, at least in part, by following a number of lines resulting from attempts to flesh-out, resolve, or simply come to terms with general equilibrium theory. As you might recall from subunit 4.1.2, general equilibrium theory came about in the latter half of the 19th century explicitly in the form of Leon Walras’s 1874 work, Elements of Pure Economics, and subsequently with the addition of graphical representation in his 1892 paper “Geometrical Theory of the Determination of Prices”: It follows from the nature of the [supply and demand] curves, that we shall obtain the provisional current price of (B) by raising it in case of a surplus of effective demand over effective supply, and lowering it, on the contrary, in case of a surplus of effective supply over effective demand. Passing then to the determination of the current price of (C), then to the current price of (D) ..., we obtain them by the same means. It is quite true that, in determining the price of (C), we may destroy the equilibrium in respect to (B); that, in determining the price of (D), we may destroy the equilibrium in respect to (B), and in respect to (C), and so on. But as the determinations of the prices of (C), (D) ... in respect to the demand and supply of (B), will result in a contrary way, we shall always be nearer the equilibrium at the second trial than at the first. -
Chapter 5 Perfect Competition, Monopoly, and Economic Vs
Chapter Outline Chapter 5 • From Perfect Competition to Perfect Competition, Monopoly • Supply Under Perfect Competition Monopoly, and Economic vs. Normal Profit McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. From Perfect Competition to Picking the Quantity to Maximize Profit Monopoly The Perfectly Competitive Case P • Perfect Competition MC ATC • Monopolistic Competition AVC • Oligopoly P* MR • Monopoly Q* Q Many Competitors McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Picking the Quantity to Maximize Profit Characteristics of Perfect The Monopoly Case Competition P • a large number of competitors, such that no one firm can influence the price MC • the good a firm sells is indistinguishable ATC from the ones its competitors sell P* AVC • firms have good sales and cost forecasts D • there is no legal or economic barrier to MR its entry into or exit from the market Q* Q No Competitors McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw -Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. 1 Monopoly Monopolistic Competition • The sole seller of a good or service. • Monopolistic Competition: a situation in a • Some monopolies are generated market where there are many firms producing similar but not identical goods. because of legal rights (patents and copyrights). • Example : the fast-food industry. McDonald’s has a monopoly on the “Happy Meal” but has • Some monopolies are utilities (gas, much competition in the market to feed kids water, electricity etc.) that result from burgers and fries. -
On Welfare Economics in the Principles Course
THE JOURNAL OF ECONOMIC EDUCATION , VOL. , NO. , – http://dx.doi.org/./.. CONTENT ARTICLES IN ECONOMICS On welfare economics in the principles course N. Gregory Mankiw Department of Economics, Harvard University, Cambridge, MA, USA ImuchenjoyedreadingthesearticlesbySteveSchmidtandJonathanB.Wightonthenormativeunder- pinningsofhowweteachintroductoryeconomics.Ihavelongbelievedthatteachingthefundamentalsof economics to the next generation of voters is among the highest callings of our profession. It is therefore useful to regularly reflect on whether we are doing it well and how we might do it better. I agree with many of the substantive points raised in the articles, although I think that the current crop of textbooks (including my own) do a better job than Schmidt and Wight sometimes give them credit for. Rather than quibble with details, however, let me lay out five of the main lessons that I emphasize as Iteachthismaterial: (1) Efficiency is a useful lens through which to view outcomes. Understanding market success and market failure is a central feature of my course, especially in the microeconomics half. Adam Smith’s invisible hand is best understood as the proposition that the equilibrium of supply and demand maximizes the sum of producer and consumer surplus. The market failures that arise from externalities or monopoly power are best understood as the departure of the unregulated outcome from the surplus-maximizing allocation of resources. (2) Efficiency is not the only goal of policy.Whenintroducingthenotionofefficiency,Imakeclear that policymakers have other objectives as well. In chapter 1 of my text (Mankiw 2015, 12),I wrote, “Even when the invisible hand yields efficient outcomes, it can nonetheless leave sizable disparities in economic well-being. … The invisible hand does not ensure that everyone has suf- ficient food, decent clothing, and adequate healthcare. -
Extended Second Welfare Theorem for Nonconvex Economies With
Wayne State University Mathematics Research Reports Mathematics 6-1-2010 Extended Second Welfare Theorem for Nonconvex Economies with Infinite Commodities and Public Goods Aychiluhim Habte Benedict College, Columbia, SC, [email protected] Boris S. Mordukhovich Wayne State University, [email protected] Recommended Citation Habte, Aychiluhim and Mordukhovich, Boris S., "Extended Second Welfare Theorem for Nonconvex Economies with Infinite Commodities and Public Goods" (2010). Mathematics Research Reports. Paper 77. http://digitalcommons.wayne.edu/math_reports/77 This Technical Report is brought to you for free and open access by the Mathematics at DigitalCommons@WayneState. It has been accepted for inclusion in Mathematics Research Reports by an authorized administrator of DigitalCommons@WayneState. EXTENDED SECOND WELFARE THEOREM FOR NONCONVEX ECONOMIES WITH INFINITE COMMODITIES AND PUBLIC GOODS AYCHILUHIM HABTE and BORIS S. MORDUKHOVICH WAYNE STATE UNIVERSITY Detroit, Ml 48202 Department of Mathematics Research Report 2010 Series #6 This research was partly supported by the US National Science Foundation EXTENDED SECOND WELFARE THEOREM FOR NONCONVEX ECONOMIES WITH INFINITE COMMODITIES AND PUBLIC GOODS AYCHILUHIM HABTE1 and BORIS S. MORDUKHOVICH2 Abstract. Thi~ paper is devoted to the study of non convex models of welfare economics with public gooclH and infinite-dimensional commodity spaces. Our main attention i~ paid to new extensions of the fundamental second welfare theorem to the models under consideration. Based on advanced -
Values in Welfare Economics Antoinette Baujard
Values in Welfare economics Antoinette Baujard To cite this version: Antoinette Baujard. Values in Welfare economics. 2021. halshs-03244909 HAL Id: halshs-03244909 https://halshs.archives-ouvertes.fr/halshs-03244909 Preprint submitted on 1 Jun 2021 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. WP 2112 – June 2021 Values in Welfare economics Antoinette Baujard Abstract: This chapter focuses on the inner rationale and consequences of four different archetypal positions regarding how ethical and political values are tackled in welfare economics. Welfare economics is standardly associated with the welfarist framework, for which social welfare is based on individual utility only. Beyond this, we distinguish the value-neutrality claim – for which ethical values should be and are out of the scope of welfare economics –, the value confinement ideal – for which ethical values are acceptable if they are minimal and consensual–, the transparency requirement – for which any ethical values may be acceptable in the welfare economics framework if explicit and formalized –, and the entanglement claim – which challenges the very possibility of demarcation between facts and values. Keywords: Welfare economics, facts and values, value judgement, welfarism, transparency, demarcation, normative and positive, neutrality JEL codes: B41, D60, D63 Values in Welfare economics1 By Antoinette Baujard2 Abstract. -
Classical Vs Neoclassical Conceptions of Competition
ISSN 1791-3144 University of Macedonia Department of Economics Discussion Paper Series Classical vs. Neoclassical Conceptions of Competition Lefteris Tsoulfidis Discussion Paper No. 11/2011 Department of Economics, University of Macedonia, 156 Egnatia str, 540 06 Thessaloniki, Greece, Fax: + 30 (0) 2310 891292 http://econlab.uom.gr/econdep/ 1 Classical vs. Neoclassical Conceptions of Competition∗ By Lefteris Tsoulfidis Associate Professor, Department of Economics University of Macedonia 156 Egnatia Street, 540 06, Thessaloniki, Greece Tel. 2310 891-788, Fax 2310 891-786 Homepage: http://econlab.uom.gr/~lnt/ Abstract This article discusses two major conceptions of competition, the classical and the neoclassical. In the classical conception, competition is viewed as a dynamic rivalrous process of firms struggling with each other over the expansion of their market shares. This dynamic view of competition characterizes mainly the works of Smith, Ricardo, J.S. Mill and Marx; a similar view can be also found in the writings of Austrian economists and the business literature. By contrast, the neoclassical conception of competition is derived from the requirements of a theory geared towards static equilibrium and not from any historical observation of the way in which firms actually organize and compete with each other. Key Words: B12, B13, B14, L11 JEL Classification Codes: Classical Competition, Regulating Capital, Incremental Rate of Return, Rate of Profit, Perfect Competition. 1. Introduction This article contrasts the classical and the neoclassical theories of competition, starting with the classical one as this was developed in the writings of Smith, Ricardo, J.S. Mill and more explicitly analyzed in Marx’s Capital. The claim that this paper raises is that the classical conception of competition despite its realism was gradually replaced by the neoclassical one, according to which competition is an end state rather than a description of the way in which firms organize and actually compete with each other. -
An Evaluation of the Comparative Advantage Theory of Competition
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by DCU Online Research Access Service DCU Business School RESEARCH PAPER SERIES PAPER NO. 2 1996 An Evaluation of the Comparative Advantage Theory of Competition Siobhain McGovern DCU Business School ISSN 1393-290X AN EVALUATION OF THE COMPARATIVE ADVANTAGE THEORY OF COMPETITION I. In a recent issue of the Journal of Marketing , Shelby Hunt and Robert Morgan outline a number of strategy oriented works in the field of marketing, and argue that this work is evolving toward a new theory of competition' (1995, 1). They argue that this new theory of competition `explains key macro and micro phenomena better than does neoclassical theory' (1995, 1). By neoclassical theory, they `mean the theory of perfect competition' (1995, 1). They argue that the comparative advantage theory of competition explains two phenomena, i) `why economies premised on competition are far superior to command economies in terms of the quantity, quality, and innovativeness of goods and services produced,' and ii) `the micro phenomenon of firm diversity' (1995, 2), by postulating a link between the firm's comparative advantage of resources and its ability to create a competitive advantage in the marketplace. This paper deals with two issues concerning Hunt and Morgan's argument. Firstly, it questions the validity of their claim that the comparative advantage theory of competition provides a better explanation of competition than the neoclassical theory of perfect competition. Secondly, it addresses the implication in Hunt and Morgan's paper that their comparative advantage theory has superior explanatory power to existing theories of competition. -
Breaking the Mould: an Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State Ha-Joon Chang, May 2001
Breaking the Mould An Institutionalist Political Economy Alternative to the Neoliberal Theory of the Market and the State Ha-Joon Chang Social Policy and Development United Nations Programme Paper Number 6 Research Institute May 2001 for Social Development The United Nations Research Institute for Social Development (UNRISD) thanks the governments of Denmark, Finland, Mexico, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom for their core funding. Copyright © UNRISD. Short extracts from this publication may be reproduced unaltered without authorization on condition that the source is indicated. For rights of reproduction or translation, application should be made to UNRISD, Palais des Nations, 1211 Geneva 10, Switzerland. UNRISD welcomes such applications. The designations employed in UNRISD publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of UNRISD con- cerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The responsibility for opinions expressed rests solely with the author(s), and publication does not constitute endorse- ment by UNRISD. ISSN 1020-8208 Contents Acronyms ii Acknowledgements ii Summary/Résumé/Resumen iii Summary iii Résumé iv Resumen v 1. Introduction 1 2. The Evolution of the Debate: From “Golden Age Economics” to Neoliberalism 1 3. The Limits of Neoliberal Analysis of the Role of the State 3 3.1 Defining the free market (and state intervention) 4 3.2 Defining market failure 6 3.3 The market primacy assumption 8 3.4 Market, state and politics 11 4. -
Market-Structure.Pdf
This chapter covers the types of market such as perfect competition, monopoly, oligopoly and monopolistic competition, in which business firms operate. Basically, when we hear the word market, we think of a place where goods are being bought and sold. In economics, market is a place where buyers and sellers are exchanging goods and services with the following considerations such as: • Types of goods and services being traded • The number and size of buyers and sellers in the market • The degree to which information can flow freely Perfect or Pure Market Imperfect Market Perfect Market is a market situation which consists of a very large number of buyers and sellers offering a homogeneous product. Under such condition, no firm can affect the market price. Price is determined through the market demand and supply of the particular product, since no single buyer or seller has any control over the price. Perfect Competition is built on two critical assumptions: . The behavior of an individual firm . The nature of the industry in which it operates The firm is assumed to be a price taker The industry is characterized by freedom of entry and exit Industry • Normal demand and supply curves • More supply at higher price Firm • Price takers • Have to accept the industry price Perfect Competition cannot be found in the real world. For such to exist, the following conditions must be observed and required: A large number of sellers Selling a homogenous product No artificial restrictions placed upon price or quantity Easy entry and exit All buyers and sellers have perfect knowledge of market conditions and of any changes that occur in the market Firms are “price takers” There are very many small firms All producers of a good sell the same product There are no barriers to enter the market All consumers and producers have ‘perfect information’ Firms sell all they produce, but they cannot set a price. -
Welfare State in the Twenty-First Century Joseph E
The Welfare State in the Twenty-First Century Joseph E. Stiglitz1 Designing the twenty-first-century welfare state is part of a broader debate redefining the role of the market, the state, and “civil society”—non-state forms of collective action. One of the tenets of the Reagan-Thatcher revolution was questioning the welfare state. Some worried that the financial burdens of the welfare state would drag down growth. Some worried about the effect of the welfare state on the sense of individual responsibility, others that the welfare state provides an opportunity for the lazy and profligate to take advantage of hardworking citizens. A sense of social solidarity had united citizens around the world during World War II. Some thirty years after that global conflict, that solidarity was eroding, and economic arguments quickened its disintegration. Even two decades after the doctrines of the Reagan-Thatcher revolution of the 1980s had taken root—and long after its shortcomings had become obvious—others argued that the welfare state had contributed to the euro crisis.2 This paper argues that these arguments criticizing the welfare state are for the most part fallacious and that changes in our economy have even increased the importance of the system. The paper then describes some of the key elements of a twenty-first-century welfare state. I. Basic Precepts of the Welfare State To understand the principles and philosophy of the welfare state, it is useful to contrast it with the “neoliberal” or market-oriented state.3 The central economic doctrine of neoliberalism is that markets are efficient. -
The First Fundamental Theorem of Welfare Economics
THE FIRST FUNDAMENTAL THEOREM OF WELFARE ECONOMICS KEGON TENG KOK TAN Abstract. A brief proof of the First Welfare Theorem aimed par- ticularly at providing an accessible way to understand the theorem. Some effort has been made to translate the mathematics into more economic terms and a number of economic terms are used without proper definition as we assume the reader has some background knowledge in economics. The paper will end by discussing the implications of the theorem and further applications. 1. Introduction The First Welfare Theorem is really a mathematical restatement of Adam Smith's famous \invisible hand" result. It relates competitive equilibria and Pareto opti- mality, which we will define more precisely further on. But before that, some preliminary terms are introduced. We let S be a normed vector space with norm k · k. We interpret S to be a commodity space, each vector representing a basket of commodities. There are I consumers, 1; 2;:::;I. Each consumer i chooses from a set of commodity points in the set Xi ⊆ S, giving each commodity point (that is, basket of commodities) a value via the utility function ui : Xi ! R. There are J firms, 1; 2;:::;J. Each firm j chooses among points in the set Yj ⊆ S, each point being a vector describing production of the firms in the various commodities under technological limitations. The members of the economy, both firms and consumers, interact with each other in the demand and supply of factors of production and final goods. Firms demand factors of production and supply final goods (negative and positive components of the yj's, respectively) while consumers supply factors of production (for example, in the form of labour) and demand final goods (negative and positive components of the xi's, respectively).