+
Cards In This Set
| Front | Back |
|
Stigler discusses how the concept of competition "became confused with a perfect market uniqueness of equilibrium and stationary conditions." How does perfect competition, as opposed to competition as rivalry, involve these concepts?
|
Perfect market: homogenous productsuniqueness of equilibrium: only variable is Qstationary: LRE
|
|
Does competition refer to a process or a state/result if we follow Adam Smith's logic? If we follow the logic of the perfect competition model? Are these meaning for competition compatible?
|
Adam Smith: processPC: instant processboth are mutually exclusive
|
|
How is the perfect market assumption of the perfect competition model related to the assumption that a firm maximizes short run profits as the way to maximize the present value of profits?
|
On OE, all products are homogenous and there are no seller identities so its easy to max SR because no future consequences
|
|
How did Cournot's approach generate a horizontal demand curve for competition?
|
First derivative of P wrt output=0, therefore firms can't change P, if you cant do that you can't affect rivals and if you can't do that, no competition.
|
|
What must be true of a market, for Jevons' law of indifference be true? Why is price discrimination a common competitive result in many real world markets?
|
Must have 0 search costs; if positive search costs then people will have different prices. PD is common competitive result, example fruit stands.
|
|
What does Stigler mean when he says "A market may be perfect and monopolistic or imperfect and competitive"? Does the monopoly model assume perfect markets? Would perfect markets be likely to arise with a monopoly producer? When would perfect markets arise? Can perfect competition exist on an imperfect market?
|
Market can be perfect and monopolistic but imperfect markets cant be competitive because PC needs homogenous products. monopoly assumes PM. PM would not arise with monopolies because it costs money to set up and they'd rather PD because its more profitable. PC cant exist on imperfect market.
|
|
How does Edgeworth's telephone conference call analogy illustrate a crucial aspect of perfect markets?
|
Everyone has to be in the same place at the same exact time, no spatial differences. everyone has to be able to hear the offers made.
|
|
What does perfect competition require homogenous products? Why is a perfect market necessary for products to be completely homogeneous to buyers?
|
PC requires homogenous because identities will add bias. PM needs homogenous products to sell instantly.
|
|
Why did Stigler say "one of the assumptions of perfect competition is the existence of a Sherman Act?"
|
Assumed that government needed to be there to enforce PC, but incorrect because they're the biggest enforcers of monopolies/cartels.
|
|
Stigler says "we wish the definition of competition to capture the essential content of important markets, so the predictions drawn from the theory will have wide empirical reliability," and claims that perfect competition has done so. Are there ways the perfect competition model misleads us when we are trying to analyze firm level behavior while being useful at the industry level?
|
PC doesn't include very important variables like pricing policy, quality, warranty, etc. supply and demand is correct but at the firm level, it doesn't apply.
|
|
Why does Stigler worry about what entrepreneurs seek to maximize under conditions of change and uncertainty? What does the perfect competition model assume entrepreneurs seek to maximize? Does it assume they are successful?
|
You cannot maximize under uncertainty. example, flipping a coin. PC model assumes entrepreneurs max profits but there's no point because in order to maximize you assume away problem you're trying to solve.
|
|
What is Stigler's response to the criticism that perfect competition is unrealistic? What if perfect competition is unrealistic in areas crucial to analysis?
|
Example, model airplane. model airplane can be unrealistic in certain respects but must be realistic where you need it to be. PC is unrealistic because it ignores a number of variables and makes a number of assumptions, no BTE, no search costs, perfect knowledge, etc.
|
