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Perfect Competition and the Creativity of the Market

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  • Joseph M. Ostroy
  • Louis Makowski

Abstract

From the perspective of the Walrasian general equilibrium model, entrepreneurial and opportunistic behavior seems foreign. Can the model be refashioned so that it can accommodate such behavior? Many would say no, but we argue the contrary. Indeed, we present a reformulation of the model that serves as a gateway to, rather than a detour from, such contemporary issues as innovation and incentives. The trick is to reexamine what perfect competition means. Starting with an historical summary of general equilibrium, we sketch an image of the perfect competitor as an active market opportunist, seeking out profit potentials wherever he can.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.39.2.479
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 39 (2001)
Issue (Month): 2 (June)
Pages: 479-535

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Handle: RePEc:aea:jeclit:v:39:y:2001:i:2:p:479-535

Note: DOI: 10.1257/jel.39.2.479
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References

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  1. Makowski, Louis, 1980. "A characterization of perfectly competitive economies with production," Journal of Economic Theory, Elsevier, vol. 22(2), pages 208-221, April.
  2. Ostroy, Joseph M., 1980. "The no-surplus condition as a characterization of perfectly competitive equilibrium," Journal of Economic Theory, Elsevier, vol. 22(2), pages 183-207, April.
  3. Adam Brandenburger & Harborne Stuart, 2007. "Biform Games," Management Science, INFORMS, vol. 53(4), pages 537-549, April.
  4. Hart, Oliver D, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 1-30, January.
  5. Samuel Bowles & Herbert Gintis, 1993. "The Revenge of Homo Economicus: Contested Exchange and the Revival of Political Economy," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 83-102, Winter.
  6. Makowski, Louis & Ostroy, Joseph M., 1987. "Vickrey-Clarke-Groves mechanisms and perfect competition," Journal of Economic Theory, Elsevier, vol. 42(2), pages 244-261, August.
  7. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Judith R. Gelman & Steven C. Salop, 1983. "Judo Economics: Capacity Limitation and Coupon Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 315-325, Autumn.
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Citations

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Cited by:
  1. Hsee, Christopher K. & Shen, Luxi & Zhang, Shirley & Chen, Jingqiu & Zhang, Li, 2012. "Fate or fight: Exploring the hedonic costs of competition," Organizational Behavior and Human Decision Processes, Elsevier, vol. 119(2), pages 177-186.
  2. Tomáš Otáhal, 2009. "The Agency Problem in New Institutional Economics," Politická ekonomie, University of Economics, Prague, vol. 2009(5), pages 677-695.
  3. Khan, M. Ali Khan, 2007. "Perfect Competition," MPRA Paper 2202, University Library of Munich, Germany.
  4. Juan Urrutia Elejalde, 2012. "Anarchism, postmodernism and realism under confirmatory bias," SERIEs, Spanish Economic Association, vol. 3(1), pages 273-290, March.
  5. Schmidtchen, Dieter, 2005. "Der "more economic approach" in der Wettbewerbspolitik," CSLE Discussion Paper Series 2005-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  6. Alberto Battistini, 2007. "Surplus-Value, Distribution and Exploitation," Department of Economics University of Siena 518, Department of Economics, University of Siena.
  7. Kultti, Klaus & Vartiainen, Hannu, 2008. "Bargaining with many players: A limit result," Economics Letters, Elsevier, vol. 101(3), pages 249-252, December.
  8. Oliver E. Williamson, 2005. "The Economics of Governance," American Economic Review, American Economic Association, vol. 95(2), pages 1-18, May.
  9. Alberto Chilosi, 2003. "Coordination, Cooperation, And The Extended Coasean Approach To Economic Policy," Public Economics 0306003, EconWPA, revised 09 Sep 2003.
  10. Kim, Jongwook & Mahoney, Joseph T., 2008. "A Strategic Theory of the Firm as a Nexus of Incomplete Contracts: A Property Rights Approach," Working Papers 08-0108, University of Illinois at Urbana-Champaign, College of Business.
  11. Kirsten Foss & Nicolai J. Foss, 2002. "Creating, Capturing and Protecting Value A Property Rights-based View of CompetitiveStrategy," DRUID Working Papers 02-02, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  12. Nicolai J. Foss, 2002. "The Strategy and Transaction Cost Nexus Past Debates, Central Questions, and Future Research Possibilities," DRUID Working Papers 02-04, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  13. Adegbesan, Tunji, 2007. "Strategic factor markets: Bargaining, scarcity, and resource complementarity," IESE Research Papers D/666, IESE Business School.
  14. Kirsten Foss & Nicolai J. Foss, 2003. "Authority in the Context of Distributed Knowledge," DRUID Working Papers 03-08, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  15. Metcalfe, J.S. & Ramlogan, R., 2005. "Competition and the regulation of economic development," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 215-235, May.
  16. Alberto Battistini, 2006. "The Role of Inter-Group Relationships in Institutional Analysis," Department of Economics University of Siena 487, Department of Economics, University of Siena.
  17. Alberto Battistini, 2008. "Micro-Founded Institutions and Macro-Founded Individuals: The Dual Nature of Profit," Department of Economics University of Siena 550, Department of Economics, University of Siena.

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