Market Competition and Selection (original) (raw)
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Are profit-maximisers the best survivors?
Journal of Economic Behavior & Organization, 1989
This paper demonstrates that the Friedman conjecture that prolit-maximisation 'summarises appropriately' the conditions for lirm survival is not generally true. If firms have market power, prolit-maximisers are not necessarily the best survivors because of the possibility of 'spiteful' behaviour of the following kind. Say a firm forgoes profit-maximisation and thus decreases its survival chances, but its deviation from maximisation harms its profit-maximising competitors more than itself. Though the firm will be less likely to survive than it would if it maximised its profits, it will still be more likely to survive than its competitors.
The Forgotten Theory of Incomplete Competition
Economic integration and globalization are mega-trends of the world economy. Economic decision-making is devolving downwards to sub-national units. At the same time, some part of this power has also moved upwards to multiregional organizations, e.g. the EU, due to integration. Knowledge intensive regions, e.g. Silicon Valley or New York in the U.S., are winners of the global agglomeration economies. They are often the hosts of MNC headquarters. The growth of MNCs in number has been remarkable, from 7,000 in 1969 to 100,000 in 2014 (UNCTAD). In the 1960s, MNCs were perceived as big and bad. Today, MNCs are a part of their host nations export capacity and technology assets. Their economies of scale depend on the size of capacity and speed (or intensity) with which it is utilized. Ricardo's comparative advantage is the key concept in international trade. Since the 1990s, when the WTO was established, the industrialized countries oriented towards Smith's absolute advantage. An indicator of that is the rapid adoption of Porter's cluster concept (Coleman, 1980), which refers to that fact that the home country of the cluster tries to domesticate the cluster elements by a hidden mercantilism (Porter, 1990). Schumpeter (1934) distinguished innovation as the main function of entrepreneurship. Schumpeter (1939) referred to the fundamental problem of economic change. In the face of a keen competition, entrepreneurs are obliged to innovative, which is a source of economic growth. Schumpeter gave economists food for thought with the concept of creative destruction (1942). Schumpeter was well aware of the monopolistic power of big firms. He predicted the transition from the competitive capitalism to the trustified capitalism. Schumpeter himself believed that the free market capitalism is the best economic system. John Galbraight completed Schumpeter's prediction of corporatism. He launched as a parallel concept to trustified capitalism. He believed that large firms have the countervailing power (Galbraight, 1956) that describes a certain level of collusion between large firms and the government. Schumpeter and Galbraith were both worried about the fact that the so-called static economic efficiency was a barrier to innovate. MNCs that operate globally in all markets (goods, services, financing, IPRs 2 , etc.) dominate the international trade of commodities. There are rational reasons for that. The main reason is the large economies of scale available in global markets. Another reason is the evolution of institutions that protect intellectual properties in global context. NMCs have invested in countries like China, owing to impressive economic growth rates. Today, the paradox is
Competition as an evolutionary process: Mark Blaug and evolutionary economics
Mark Blaug: Rebel with Many Causes, 2013
Mark Blaug and I agree that if there is a realist interpretation of economic behavior to be discerned in Friedman (1953), it is to be found not in Friedman's belief that the profit motive overrides other possible motives, but in his belief that a selection mechanism is working in competitive markets. Our joint sympathy for evolutionary economics is largely based on a conviction that the conception of competition as a dynamic evolutionary process is rather plausible. We disagree, however, on two issues: first, how important the evolutionary conception was for Friedman's overall argument; and, second, whether we can learn something about the real world from rigorous formal analytical models. In this article, I explain and argue for my position on these two issues, and use Nelson and Winter's (1982) theory of evolutionary economics to support an illustrate my argument.
The thesis of ruinous competition
Robert Brenner's Economics of Global Turbulence advances our understanding both of the long capitalist upswing of 1950-73, and of the troubled development since then, by directing attention to, and providing keen factual analysis of, the varying structures of world markets. Its claim that troubled development has been due to ruinous international competition in manufacturing emerging and then getting "stuck" is doubtful. Sharpened competition cuts profit rates in a major way only when combined with at least limited "wage-push. However, Brenner is right to reject accounts based on a Tendency of the Rate of Profit to Fall, or on presenting abstract elements of crisis detected by Marx as templates for all capitalist development. Marx's writings on crisis, though illuminating, did not complete the theoretical work Marx himself proposed -to trace the concatenation of all the various contradictions in the capitalist mode of production. The instability of capitalism in the period since 1973 may stem (as suggested by E A Brett) from the replacement by a more febrile regime of the "symbiosis" between unevenly-developing sectors of capital seen by Brenner as permitting the long upswing, and the reduced rates of profit (as suggested by Fred Moseley) from hypertrophy of unproductive sectors.
Competition as Evolutionary Process
ECONOMICS AND MANAGEMENT, 2012
Economists regard market competition as the basis for the science of economics and most of them understand competition through equilibrium framework. However, some scholars criticize neoclassical approach by allegations that it is wrong to assume perfect competition as a driving force of the market; profit and loss are disequilibrium characteristics. The market is viewed as one of the firm's main sources and constraints. Each rival seeks to maximise its market share by becoming the most productive, effective and the largest market leader, or by avoiding competition because of differentiation of products. This paper suggests that innovation is not the only option for competition. The firm may choose to be simpler instead of being more advanced as well. Therefore, firms in more advanced markets that are at the frontier of innovation have no choice and must innovate to keep their positions there. Conversely, in less advanced markets firms are prone to look for easier ways.
Perfect Competition A Case of Market-Failure
In this paper we research one of the corporate governance mechanisms, i.e, market for goods and services. We focus on perfect competition. We concluded with the explicit argument for letting loose the dogs of the Federal Trade Commission and the Antitrust Division of the Justice Department upon perfect competitors. Our main concern is the failure of mainstream economics to incorporate, properly and completely, the concept of foregone alternatives, into its analysis. The present paper is an attempt to trace out the some of the implications of this critical error for industrial organization.
The Economic Journal, 1984
Debates between economists are not just technical arguments amongst practitioners but often reflect philosophical and ideological positions which are not always made explicit. Discontent grew with the prevailing economic orthodoxy as the long period of economic expansion in the advanced capitalist economies came to an end in the 1970s; disenchantment was expressed in open discussion about the 'crisis' in economics and in the rise of various kinds of radical economic theory, often using the general tide of 'political economy'. Many economists have looked for a more fruitful point of departure in the ideas of Marx and the classical economists and also in such contemporary economists as Kalecki and Sraffa. AIthough it is possible to identify a broad radical stream, it does not mean that there are no significant controversies within this radical approach and, indeed, it would be unhealthy if this were not the case. Can radical economic theory interpret the world better than the current orthodoxy which it challenges? And can it show also how to change it? This is achallenge which this series proposes to take up, adding to work already being done. Each book will be a useful contribution to its particular field and should become a text around which the study of economics takes place.
Value, Competition and Exploitation
Value, Competition and Exploitation, 2018
The Circular Flow of Income and Input-Output Analysis 1.1 Introduction 1.2 An early example of global economic reasoning 1.3 Input-output analysis: Surplus, multipliers and connectedness 1.4 Contemporary empirical input-output tables 1.5 Conclusions 1.6 Appendix: Further properties of matrices 2 Adam Smith: The "Invisible Hand" and Accumulation 2.1 Ruthless competition: The invisible hand in the early and rude state of society 2.2 The structure of the economy 2.3 Classical competition 2.4 CCE: Equilibrium and efficiency 2.5 Real wages and Malthusian population dynamics: Efficient pauperization v vi Value, Competition and Exploitation 2.6 Conclusions 2.7 Appendix: The neoclassical theory of the firm and capital accumulation 3 Adam Smith II: The "Invisible Hand" and "Natural Prices" 3.1 Restless competition II: Values and natural prices 3.2 Values and prices in the early and rude state 3.3 The multi-sector economy. Economic propositions and mathematical theorems 3.4 Empirical examples of wage-profit curves 3.5 Conclusions 4 David Ricardo: Long-Period Prices, Accumulation, and the Invariable Measure of Value 4.1 Introduction 4.2 Production data and labor values 4.3 Price equations and the wage-profit curve 4.4 Quantity equations and the consumption-growth curve 4.5 Income distribution, savings and the Classical closure 4.6 Differentiated saving habits and multiple equilibria 4.7 Proportions in production and relative price movements 4.8 The choice of numéraire: The foredoomed search for an invariable measure of value 4.9 Actual income shares in the open economy 4.10 Substitution and the choice of technique 4.11 Conclusions 5 The von Neumann-Sraffa Model 5.1 The von Neumann growth model 5.2 The gravitation of market prices in a square von Neumann-Sraffa system 5.3 Process and product extinction in the classical gravitation process 5.4 Conclusions Contents vii Part II Value and Exploitation: Marx's Legacy 6 Labor Values: An Axiomatic Approach 6.1 Introduction 6.2 The labor content of commodities: The real side of social interdependence 6.3 Basic principles when generalizing labor values 6.4 Simple quantitative features of the Labor Theory of Value 6.5 Pragmatic uses and applications of the notion of labor values 6.6 Conclusions 7 Labor Productivity and the Law of Decreasing Labor Content 7.1 Introduction 7.2 The labor content of commodities and the measurement of labor productivity 7.3 Technical change and the law of decreasing labor content 7.4 Conclusions 8 The Sources of Aggregate Profitability: Marx's Theory of Surplus Value Revisited 8.1 Introduction 8.2 The SNA approach to Marxian labor values 8.3 Average value and price gross rates of profit 8.4 Labor values and the LDLC: Empirical results 8.5 Three main sources of aggregate profitability 8.6 Conclusions 8.7 Appendix 9 Actual Labor Values with Multiple Activities 9.1 Introduction 9.2 Average and individual labor values in single product systems 9.3 Individual and average labor values 9.4 The measurement of labor contents viii Value, Competition and Exploitation 9.5 Prices, profits, and rate(s) of exploitation 9.6 Conclusions 10 Joint Production in a (Marxian) System of National Accounts Contents ix 13.3 Theoretical aspects of wage-profit curve measurements 13.4 Wage-profit curve measurement: An example 13.5 Conclusions 13.6 Appendix 1: Linear wage-profit curves and capital intensities 13.7 Appendix 2: Capital consumed and capital advanced 14 Conclusions 14.1 The way forward References Index List of Figures 2.1 The optimal allocation of labor in corn production 2.2 Income distribution in a classical corn economy 2.3 Adjustment path towards the steady state after an increase in agricultural productivity or when agricultural taxation is reduced 2.4 Income distribution in the neoclassical manufacturer world 3.1 The wage-profit curve and the conflict over income distribution with manufactured means of production 3.2 Empirical wage-profit curves under different consumption baskets 4.1 The wage-profit curve for κ ≡ k 2 /k 1 = 1 (measured in terms of good 2) 4.2 w(r) and p 1 (r) curves for κ ̸ = 1 4.3 The consumption-growth trade-off for κ ̸ = 1 4.4 The determination of average capital intensity p 1 k 4.5 The closure of the classical model by subsistence wages w = w and the savings hypothesis g = s k r; for κ > 1 (p 2 = 1) 4.6 The growth-profit curve for k k = 0, i.e. gp 1 k = s w (w + rp 1 k) 4.7 The g-r savings relationship for non-uniform capital intensities 4.8 The g-r curve for k 1 = k 2 4.9 Pasinetti (w 2) and Anti-Pasinetti (w 1) outcomes under the classical closure 4.10 Sectoral labor intensities for py = 1 as function of the rate of profit r 4.11 Sectoral labor intensities for py = 1 over selected ranges of the rate of profit r 4.12 The prices of sectors 2-4 for py = 1 as a function of the profit rate r x List of Figures xi 4.13 The prices of sectors 5-7 for py = 1 as a function of the profit rate r 4.14 The sectoral labor intensities for pq n = 1 as function of the rate of profit r 4.15 The prices of sectors 2-4 for pq n = 1 as function of the rate of profit r 4.16 The prices of sectors 5-7 for pq n = 1 as function of the rate of profit r 4.17 Sectoral capital intensities k j as ratios ofk as a function of the profit rate 4.18 Prices from Table 3.5 4.19 National income and the wage-profit curve (l(I − δA) −1 b = 1 = pb) 4.20 Normalizing by net national product (py = 1 = l(I − δA) −1 y) for varying r 4.21 The illusion of a linear subdivision of national income 4.22 A simplification of the theory of income distribution? [0 < s w < s k ≤ 1] 4.23 Representing income distribution using the workers' consumption basket as the numéraire (pc = pb = 1, py, w(r) from top to bottom) 4.24 Representing income distribution by way of Sraffa's Standard Commodity (pq n = 1, py, w(r) from top to bottom) 4.25 The representation of income shares in net national product (pq n , py = 1, w(r) from top to bottom) 4.26 Wage (lower line) and wage-plus-profit (upper line) shares in national product proper: y = x − A d x 4.27 The wage-profit frontier of three alternative techniques in sector 1 and a single technique in sector 2 (p 2 = 1 in all three cases, k = a 1 /l) 4.28 The wage-profit frontier for equation (4.24) and p 1 = 1 4.29 Smooth factor substitution in the one-good case (δ = 0, k = a 1 /l) 4.30 Each single technique is in operation at exactly one point of the enveloping strictly convex wage-profit frontier (w max = 1/l, r max = 1/a 1) 4.31 The classical closure and the choice of technique 4.32 The classical closure of the two degrees of freedom in the case of substitution for κ > 1, κ = 1, κ < 1 * For an overview of Peter Flaschel's intellectual journey, see Flaschel (2013).