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Profit Maximization, Industry Structure, and Competition: A critique of neoclassical theory

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  • Steve Keen
  • Russell K. Standish

Abstract

Neoclassical economics has two theories of competition between profit-maximizing firms (Marshallian and Cournot-Nash) that start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

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File URL: http://arxiv.org/pdf/nlin/0604061
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Paper provided by arXiv.org in its series Papers with number nlin/0604061.

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Date of creation: Apr 2006
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Publication status: Published in Physica A, 370, 81-85 (2006)
Handle: RePEc:arx:papers:nlin/0604061

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  1. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  2. George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1.
  3. Keen, Steve, 2004. "Deregulator: Judgment Day for microeconomics," Utilities Policy, Elsevier, vol. 12(3), pages 109-125, September.
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Cited by:
  1. Bell, William Paul, 2009. "Adaptive interactive expectations: dynamically modelling profit expectations," MPRA Paper 38260, University Library of Munich, Germany, revised 09 Feb 2010.
  2. Barreira da Silva Rocha, André, 2013. "Evolutionary dynamics of nationalism and migration," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(15), pages 3183-3197.
  3. Anglin, Paul, 2008. "On the proper behavior of atoms: A comment on a critique," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 277-280.

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