How many people think that the goal of Capitalism is to make rich people richer and to make everyone else into slaves? Fat Bastard, a.k.a. Michael Moore would like you to believe this is true. But it couldn't be further from the truth. On the other side of the coin you have "the rich", whose goal really is to further enrich themselves and to make slaves out of everyone else. They don't want anyone to be thinking about Perfect Competition because when that happens, the rich cannot "get an edge" and screw everyone else by charging more for products than what they are worth. A perfectly competitive market has many buyers and sellers of a product so no single buyer or seller can effect the market price (Economics Principles, Applications, and Tools; O'Sullivan, Sheffrin, & Perez, 2010, by Pearson Prentice Hall). Perfect Competition occurs when there's so many sellers of the same product or service that competition drives prices and profits down. That's the ultimate goal of Capitalism. Efficiency. Inexpensive products and services for all. The government's role is to set up the rules so that Perfect Competition occurs. The government is charged with observing the market and updating the rules to keep Perfect Competition in effect. When sales of products and services end up generating excessive profits for companies, then the rules of the market may have become obsolete. Fixing the rules of the market is how the government avoids unequal distribution of wealth. Market rules need to be in a perpetual cycle of continuous improvement. Some capitalists are basically smarter than just about everyone else. They seek to "rig the situation" so they can generate huge profits. This creates a constant battle between the capitalists and the government. The constant is that the government must be fair about the rules, i.e. put them in place and then let the market run with the rule set for some time and don't penalize those who "figure it out" until it's time to update the rules again. So who, besides Fat Bastard, is confused about Capitalism's goal of Perfect Competition?
It seems you completely msinderstand capitalism and confuse capitalism with free market enterprise. Capitalism's basic tenet is the maximum exploitation of basic resources, land labor and capital (money), for the maximization of returns, i.e.the accumulation of wealth. There is nothing about capitalism that precludes monopolies, in fact monopoly is the preferred situation of capitalist enterprise and government is often employed by capitalism to acheive and maintain monopoly status. As you may have noticed the maximum expression of capitalism is diametrically opposed to the notion of free market enterprise. Free market enterprise reqiures minimal government interference in the economy to acheive its goals while capitalist enterprise requires government to be ubiquitous in the economy to acheive its goals. You seem to be offering some sort of unworkable compromise, government non-interference until someone figures out how to gain a monopoly and then a crackdown. We already had that and have suffered for decades with the terrible windows operating system as a result of a government crackdown on IBM's monopoly on computers in the 1970s. Perfect competition requires the perfect exchange of information. This is currently impossible and will be for some foreseeable future. The goal of capitalism is the maximization of return on investment. This does not include the perfection of information exchange. In fact perfect information exchange will reduce the ability of capitalists to maximize their returns. Perfect competition is anathema to capitalism. Do not confuse free markets with capitalism. Capitalism thrives in free markets as the plagues thrived in middle ages. Few were left standing and most of those were serfs, bound to their masters for generation upon generation.
You've misunderstood Economics 101. Perfect competition is unachievable. None of the assumptions used are valid. The theory is used for two purposes. First, by eliminating all complexities, provide a means to introduce basic economic concepts. Second, to provide a means to quantify market failure. Even if we adopted the desperate naivety of the right wing 'libertarian' (and ignored all market failures), perfect competition wouldn't be desirable. It would lead to stagnant markets where 'normal profit' leads to insufficient investment and therefore lacklustre technical progress. And capitalism? That naturally leads to market concentration. A basic understanding of the theory of the firm (such as an appreciation of the horizontal and vertical boundaries of the firm) will inform you of that. To ensure the reproduction of profit (generated by economic rents associated with underemployment and underpayment) government becomes a key economic agent. A key stabilising force.
No, you have misunderstood Economics 101. Perfect Competition exists all over the world in so many markets for so many products and services that the list is simply too long to put in this forum. You are looking at it only through the lens of greed. I suggest you expand your limited perspective. Perfect Competition is the goal of Capitalism as an economic system. It is absolutely desirable because it leads to the most people working the hardest and the lowest possible prices for products and services. [/QUOTE] Focusing only on the microcosmic perspective of the company is not useful for understanding Capitalism as an economic system. I embrace the role of government for setting up the environment within which companies operate. The government's role can be seen as a "stabilizing force" when you consider it's responsibility for making sure that monopolies are exceedingly hard to create and maintain.
You're clearly clueless over what perfect competition entails then. We'd need, for example, perfect knowledge. Try and defend the existence of perfect knowledge! Give us a good laugh This isn't even a reply to my comment. I've referred correctly to why perfect competition is used in neoclassical analysis. You also cannot deny that the approach is static and cannot understand technical progress. You'd need instead something like Schumpeter's creative destruction (which makes a mockery of the whole notion of perfection competition and also the long term potential of capitalism) Who's goal? Its a theoretical construct that cannot exist in actual markets. You need to learn some economics! Even this is wrong! In the textbook world lower prices are more likely in imperfect competition (as the marginal and average cost curves are likely to be lower because of the associated cost advantages). It grieves me to see you abusing Economics 101 so badly! There's nothing hard about the theory so you really have no excuse Focusing on the microeconomic theory of the firm helps us appreciate economic outcome. You're also desperately out of date. Macroeconomic analysis has been based on microeconomic foundations for yonks!
Let's avoid confusion and shorten "free market enterprise" to free enterprise. Please expand on the differences you see between free enterprise and Capitalism so maybe we can avoid going down a semantics rat hole. Generally correct but need to shift away from only looking at it from the perspective of a single capitalist or company. No doubt that an individual capitalist or company's "preferred situation" is a monopoly but that only happens when the little genius capitalist or company finds a way to defeat Perfect Competition for their own benefit. The government must fight against this by setting up the "rules of the game" so that monopolies are difficult if not impossible to achieve and maintain. Governments in countries based upon free enterprise (since you prefer that term) really need to employ the very best economic geniuses to constantly watch all markets within which their constituents operate. These are the overlords who can update the rules of the game. That's a very hard job which requires extraordinary focus and awareness Please allow me to correct your statement. Actually the maximum expression of any single capitalist is diametrically opposed to Perfect Competition. We need to better define "government interference". Deep government involvement in the economy is actually a requirement. Government interference is often just an accusation made by greedy capitalists any time the government upsets their apple cart by changing the rules. Let there be no confusion about the fact that the "economy" or the system itself is there for the benefit of all participants, not just for the greedy. Please let us never forget that society must recognize and manage the one percent who are narcissists, i.e. those who seek to "rise above" and gain power over other people. So far we've been largely irresponsible in that arena. You are on point here, excellent example. It's absolutely true that we will see (and have seen) situations where we go from one monopoly to the next in many markets. Government must enforce the rules of the game in a fair and consistent manner without fear. Microsoft (and previously IBM) demonstrate the cancer of monopoly when they break the rules in an effort to maintain their monopolies. Today, Microsoft's monopoly is one of the main reasons that we see a dearth of innovation in the IT industry, relative to the level of innovation that we should be seeing. Not sure what you mean by "perfect exchange of information" but truth and transparency must prevail for the whole thing to work. Perfect Competition is anathema to any individual capitalist or company but it is the goal of Capitalism as an economic system Individual capitalists often thrive in free markets and so be it. The government over a Capitalist economy must use Capitalism as a way to ensure efficiency for the production of products and services with an eye towards maximizing employment and hard work. When the government over a Capitalist economy updates the rules of the game such that it upsets the apple cart for some capitalists, you know those effected will whine and cry about it. I may listen to all their crying and whining briefly, just in case they have a legitimate case, but otherwise I'm just laughing at them. You know narcissists want control over other people. When something frustrates them from achieving this, it's comedy gold.
Free markets do not exist. Even the existence of markets is often the result of government coercion (see, for example, how most developed countries ensured development through protectionism)
If you were the person who first defined "Perfect Competition" then please show where and when you did it. At this point you've shown nothing that suggests you even begin to understand the concept. Your head is in the clouds to the point that you've lost touch with reality. Come back down here and have a real debate when your psychotic episode is over. And you can leave your animosity towards others at the door before you enter. Schumpeter's creative destruction does no such thing. You clearly have no idea what you are talking about. What is it about the need for companies to continuously innovate to survive that you have such a problem with? Are you crying about people losing their jobs and being required to update their skills? Wake up and join us in the real world! Your ideas are not informed by what is actually happening. Perfect Competition is so simple and it exists in so many markets that your attempts to make it seem complex are futile. We'd be making progress if you had any understanding of real world economics, which you clearly do not. You are in over your head. The "textbook world" is a useless waste of time. I graduated Magna Cum Laude from Business School and I had to discard most of that garbage before I could become successful in business. The ROI of University degrees is so bad in most cases that you have to regard students simply as victims. What is it about the title of this thread that led you to believe it has anything to do with "microeconomic theory". Take that garbage to some other thread. You are wasting my time.
That perfect competition requires perfect knowledge is but a simple fact. Are you perhaps a kid that has just been taught some Econ 101? If so, please re-read your textbook as youre making very basic error Schumpeterian analysis refers to two aspects. First, that imperfect competition (through the creation of market power through innovation) is a positive driver of technical progress. Second, an understanding of how that process leads to the destruction of capitalism and the development of socialism. Perfect competition, by definition, cannot exist. Most markets are, by definition, monopolistic because of product differentiation. However, we know that perfect knowledge doesnt exist and therefore perfect competition cannot exist. All we have are markets that differ according to the relevance of monopolistic competition, oligopoly and monopoly. Business school? Say no more! Economics is a social science. You havent understood the point of the theory and, armed with a low level of understanding (which probably sounds impressive compared to the buzzword orientated shallowness of business discipline), youve inappropriately assumed that you have a theoretical understanding of some power. All you have is a textbook model that you cannot apply to actual markets. All you have is ludicrous comment given all of the assumptions of perfect competition are unrealistic. Youre the one referring to microeconomic theory. Youre just doing it very badly! Crikey, youre a prime of how a shallow understanding of neoclassical theory can be terribly damaging for the sense stakes.
Perfect competition doesn't require perfect information. That would be socialism. Competition is far better able to adapt to changing situations than government policy and regulation. Creative destruction is a key element in capitalism, it reassigns resources to more effective use. What is the goal of capitalism? What? I know you won't answer, but I'll ask anyhow - where does the money come from to lower prices when competition is inefficient? He has the theory down pat, it is your pretense of theory that is disconcerting - there are people out there that actually agree with you - thus the rise of big government run by little children, motivated by greed and ignorance. Unlike capitalism, there is no competition for government.... All economic activity is micro, macro is a crude attempt to put the micro into a system that can be analyzed. Except, economics isn't physics where one element can be evaluated while holding everything else constant. It is biology, where any change ripples through the ecosystem.
It does, by definition. You're only advertising you do not understand neoclassical economics. The point is that creative destruction is inconsistent with perfect competition (making the OP quite silly). That its original use referred to the replacement of capitalism with socialism again shows your innocence of basic economics. Because you're replying without knowledge you are giving comments that have nothing to do with the comments that you're quoting. The idea that perfect competition leads to the minimisation of prices is reliant on cost curves being constant. We know that they aren't, from the impact on economies of scale to the dynamic consequences of 'abnormal profit' for investment in innovation (and therefore cost-cutting) You do make me laugh. He's referred to a textbook theory of the firm that everyone knows cannot exist (when I say everyone I am of course referring to people that understand economics) You're not even bothering to read the thread now. I've referred to the microeconomic foundations of macroeconomics I haven't suggested that economics is physics. Neoclassical economics assumes that.
After reading your entire reply, suddenly I'm amused again. I've been trying to figure out your genus. One might think you were a professor but that "Econ 101" mistake wouldn't come from a professor because he/she would know that graduates have completed the 400 level classes. In any case, I'm aware of theory crackpots who go nuts when you use a word like "perfect" - they lose all sense of place and time. Suddenly I begin to understand where we stand, i.e. our relative positions. You guys are so rare that it's fascinating, maybe even an honor to meet one of you, even in a forum. Just re-reading what you've already said will be like a diagnostic orgasm. OMG, I may be on the verge of being able to finally understand the actual path that leads one to belief in socialism. That would be a gem worth keeping.
Competition is important, but taking it to the extreme is not good. Trying to compete with third world workers will just drive wages in the western countries into the ground. Too much competition among workers will create a death spiral, as the different workers compete by working more for lower wages. The higher productivity will benefit only the few, making for fewer jobs. Then there will be even more competition as workers compete for scarce jobs.
You've simply not understtood perfect competition. For someone completely reliant on the existence of perfect knowledge, you don't half advertise knowledge deficiency. Perfect competition cannot exist and, even if that slice of obviousness wasn't true, it wouldn't be deisrable. Cost curves would be higher and the idea of product homogeneity isn't attractive! To achieve any aspect of sense you should be referring to monopolistic competitoion. Even then you'd have to give shallow remark given the neoclassical theory of the firm isn't capable of understanding the boundaries of the firm
Let's not. There is a distinct difference between free markets, free enterprise, and capitalism. While capitalism may arise from free markets and free enterprise it does not engender either concept since its goals are the control of markets and the elimination of enterprising competition. One of the basic tenets of capitalism is to leverage all assets in all available avenues to gain market control. This does not exclude government. Venal and corrupt governments doing the bidding of dominant corporations are an expected and inevitable consequence of capitalism. Actually, outside the pc world there is plenty of innovation and competition in IT. In fact most of the movement and innovation in IT these days is so far away from what Microsoft does that they are unable to compete despite huge resource advantages. In order for markets to operate participants must have information to discern prices. A perfectly efficient market would require that all participants have simultaneous knowledge of all information pertinent to the market. As I said, this condition is impossible so perfect competition is precluded. The goal of free markets is to maximize the efficiency of exchange through free and timely information availability and exchange. Capitalism's goal is the control of markets. Free markets require the freedom of information. Capitalism controls information. There is a distinct incompatibility between capitalism and free markets concerning the availability and exchange of market information.
There are many ways to compete. German companies do not stay in declining markets to fight over the last penny, they move up the value chain and capture the first dollars in emerging markets to maintain their ever increasing standard of living. It has been the way of economic advance since the first textile mills moved away from New England to get away from rising wage demands created by an increase in the living standard from wages earned in the mills. The textile mills moved to lower wages and higher value manufacturers moved in and replaced them. Now the textile mills are in Vietnam and Bangladesh and the workers in New England are in leading edge high tech design, manufacturing and IT, some in the same buildings that were abandoned 150 years ago by the then leading edge textile industry.
