Profit maximization, industry structure, and competition: A critique of neoclassical theory
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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Volume (Year): 370 (2006)
Issue (Month): 1 ()
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References listed on IDEAS
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- Keen, Steve, 2004. "Deregulator: Judgment Day for microeconomics," Utilities Policy, Elsevier, vol. 12(3), pages 109-125, September.
- George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1-1.
- Fernando Vega Redondo, 1996.
"The evolution of walrasian behavior,"
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1996-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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