The classical notion of competition revisited

Salvadori, Neri and Signorino, Rodolfo (2010): The classical notion of competition revisited.

Abstract

We compare and analyse two different conceptions of market competition: the walrasian notion of perfect competition and the Classical notion of free competition: while the former may be described as an equilibrium state in which atomistic agents treat prices parametrically, the latter is a situation in which agents, endowed by market power, fix prices strategically. We show that price undercutting or outbidding are the typical phenomena that, for the Classical authors, may be observed in a market characterized by free competition. We investigate some problematic aspects of the neoclassical notion of perfect competition and we reconstruct the Classical theory of free competition, as developed, in particular, by Adam Smith and Karl Marx, in the light of the modern notion of mixed strategies equilibria.

• Item Type: MPRA Paper
• Language: English
• Keywords: Classical Economics, Competition, Adam Smith, Karl Marx, mixed strategies
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B12 - Classical (includes Adam Smith); L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms

References

Arena, R. (1978). Note sulla concezione classica della concorrenza. Economia e Lavoro, No. 2, pp. 323 − 352.

Arrow, K.J. (1959). Toward a theory of price adjustment, in M. Abramovitz (ed.), The Allocation of Economic Resources, Stanford: Stanford University Press, pp. 41 – 51.

Arrow, K.J. and F.H. Hahn (1971). General Competitive Analysis. San Francisco: Holden Day.

Baye, M.R. and D. Kovenock (2008). Bertrand Competition. The New Palgrave Dictionary of Economics, London: Macmillan.

Bellino, E. (2010). Gravitation of Market Prices towards Natural Prices. In R. Ciccone, C. Gehrke and G. Mongiovi (eds.). Sraffa and Modern Economics, London and New York: Routledge, forthcoming.

Bharadwaj, K. (1978). Classical Political Economy and the Rise to Dominance of Supply and Demand Theories. New Delhi: Orient Longmans.

Blaug, M. (1999). Misunderstanding Classical Economics: The Sraffian Interpretation of the Surplus Approach. History of Political Economy, vol. 31, pp. 213 – 236.

Dardi, M. (1983). Piero Sraffa (1898-1983). Quaderni di Storia dell’Economia Politica, vol. 3, pp. 3 – 14.

De Francesco, M. A. and N. Salvadori (2010). Bertrand-Edgeworth games under oligopoly with a complete characterization for the triopoly. http://mpra.ub.uni-muenchen.de/18766/

Dimand, R. W. and Mohammed H.I. Dore (1999). Cournot, Bertrand, and Game Theory: A Further Note. Atlantic Economic Journal, vol. 27, pp. 325 − 333.

Duménil, G. and D. Lévy (1987). The dynamics of competition: a restoration of Classical analysis. Cambridge Journal of Economics, vol. 11, pp. 133 – 164.

Eatwell, J. (1987). Competition, Classical. The New Palgrave Dictionary of Economics. London: Macmillan.

Edgeworth, F.Y. (1897). La Teoria pura del Monopolio, Giornale degli Economisti, vol. 40, pp. 13 – 31.

Edgeworth, F. Y. (1925). The Pure Theory of Monopoly. In Papers Relating to Political Economy, vol. 1, pp. 111 – 142, London: Macmillan.

Garegnani, P. (1983). The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices. The American Economic Review, vol. 73, pp. 309 – 313.

Garegnani, P. (1984). Value and Distribution in the Classical Economists and Marx. Oxford Economic Papers, vol. 36, pp. 291 – 325.

Giocoli, N. (2005). Modeling rational agents: the consistency view of rationality and the changing image of neoclassical economics. Cahiers d’économie politique, n. 49, pp. 177 – 208.

Green, J. (1974). The Stability of Edgeworth’s Recontracting Process. Econometrica, vol. 42, pp. 21 – 34.

Hollander, S. (1973). The Economics of Adam Smith. Toronto: University of Toronto Press and London: Heinemann.

Kaldor, N. (1972). The Irrelevance of Equilibrium Economics. The Economic Journal, vol. 82, pp. 1237 – 1255.

Kurz, H.D. and N. Salvadori (1993). Von Neumann’s growth model and the ‘Classical’ tradition. The European Journal of the History of Economic Thought, vol. 1, pp. 129 – 160.

Kurz, H.D. and N. Salvadori (1995). Theory of Production. A Long-period Analysis. Cambridge: Cambridge University Press.

Kurz, H.D. and N. Salvadori (1998). ‘Endogenous’ Growth Models and the ‘Classical’ Tradition. Chapter 4 of Understanding ‘Classical’ Economics. Studies in Long-Period Theory. London and New York: Routledge.

Kurz, H.D. and Neri Salvadori (2000). ‘Classical’ roots of input-output analysis: a short account of its long prehistory. Economic Systems Research, vol. 12, pp. 153 – 179.

Kurz, H.D. and N. Salvadori (2002). Mark Blaug on the “Sraffian Interpretation of the Surplus Approach”. History of Political Economy, vol. 34, pp. 225 – 236.

Lavezzi, A. (2003). Smith, Marshall and Young on division of labour and economic growth. The European Journal of the History of Economic Thought, vol. 10, pp. 81 – 108.

Machovec, F.M. (1995). Perfect Competition and the Transformation of Economics. London and New York: Routledge.

Magnan de Bornier, J. (1992). The “Cournot-Bertrand Debate”: A Historical Perspective. History of Political Economy, vol. 24, pp. 623 – 656.

Magnan de Bornier, J. (2001). Magnan de Bornier on Cournot-Bertrand: A Rejoinder to Clarence Morrison. History of Political Economy, vol. 33, pp. 167 – 174.

Marx, K. ([1847] 1933). Wage-Labour and Capital. New York: International Publishers Co.

Marx, K. (1909). Capital, vol. III, Chicago: Charles H. Kerr & Co.. English translation by Ernest Untermann of Das Kapital, vol. III, edited by F. Engels, Hamburg (1894): Meissner. Also available in http://www.econlib.org/library/YPDBooks/Marx/mrxCpC.html. In the text quoted as part number, chapter number, paragraph number.

Mas-Colell, A., M. Whinston and J. Green (1995). Microeconomic Theory. New York: Oxford University Press.

McNulty, P. (1967). A Note on the History of Perfect Competition. The Journal of Political Economy, vol. 75, pp. 395 – 399.

Morrison, C. (1998). Cournot, Bertrand and Modern Game Theory. Atlantic Economic Journal, vol. 26, pp. 172 – 174.

Morrison, C. (2001). Magnan de Bornier on Cournot-Bertrand. History of Political Economy, vol. 33, pp. 161 – 165.

Ricardo, D. (1951). The Works and Correspondence of David Ricardo, edited by Piero Sraffa with the collaboration of Maurice Dobb. Cambridge: Cambridge University Press.

Richardson, G.B. (1975). Adam Smith on Competition and Increasing Returns. In A.S. Skinner and T. Wilson (eds) Essays on Adam Smith. Oxford: Oxford University Press.

Roncaglia, A. (1978). Sraffa and the Theory of Prices. Chichester: John Wiley & Sons.

Samuelson, P.A. (1978). The Canonical Classical Model of Political Economy. Journal of Economic Literature, vol. 16, pp. 1415 − 1434.

Semmler, W. (1984). On the Classical and Marxian theories of competition, value and prices of production. Australian Economic Papers, vol. 23, pp. 130 − 150.

Smith, A. (1976). An Inquiry into the Nature and Causes of the Wealth of Nations, 1st edn 1776, Vol. II of The Glasgow Edition of the Works and Correspondence of Adam Smith, edited by R.H. Campbell and A.S. Skinner. Oxford: Oxford University Press. In the text quoted as WN, book number, chapter number, section number, paragraph number.

Sraffa, P. (1960). Production of Commodities by Means of Commodities. A Prelude to a Critique of Economic Theory. Cambridge: Cambridge University Press.

Steedman, I. (1984). Natural prices, differential profit rates and the Classical competitive process. The Manchester School, vol. 52, pp. 123 – 140.

Stigler, G. (1957). Perfect Competition, Historically Contemplated. The Journal of Political Economy, vol. 65, pp. 1 – 17.

Vickers, J. (1995). Concepts of Competition. Oxford Economic Papers, vol. 47, pp. 1 – 23.