econ 80a lecture 9

econ 80a lecture 9 - differentiation 5 Does a reduction in...

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HAYEK ON ECONOMIC COMPETITION [... �� .Marx sees in BIGNESS, power ..for Hayek, free trade is the solution In many firm competition, Marx sees waste .Hayek sees choice ] That is, our present economic order, with a substantial number of large firms in some industries [MONOPOLY POWER] and many smaller firms with differentiated products in others [IMPERFECT OR MONOPOLISTIC COMPETION] presents no problems what so ever, even though both diverge from what is supposed to be the optimal [PERFECT COMPETITION..] 1. He argues that the latter idea is not particularly useful .. 2. "perfect competition" a text book vision, not found in reality, where the need is to focus on the DYNAMIC setting, and on the PROCESS 3. Perfect competition assumes all the wrongs things: a homogeneous product b many buyers and sellers c free entry and exit into the industry, and d perfect knowledge 4. In effect, PC rules out any real notion of COMPETITION as it is used in every day language---i.e., rules out advertising, price cutting, product
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Unformatted text preview: differentiation 5. Does a reduction in product differentiation, i.e., standardization of the product, increase efficiency---[it certainly may as the theory of imperfect competition predicts; too many firms, etc.,] and is this simply a trade off between CHOICE AND EXPERIMANTATION vs. COST 6. In essence, one should ignore the formal definition of PC, and ask instead, what can be said about the process of competition doing so leads to what he calls a "margin of error" in predicting prices, products, etc . .i.e., there will be several prices, products no "equilibrium price" BUT EVEN SO, COMPETITION PREVAILS 7. The alternative to such anarchy is PLANNING---BY WHOM???---LIKELY THE GOVERNMENT, A FAR WORSE ALTERNATIVE 8. THUS>>>>> Don t worry about any failures to meet the classic definition of PC, and instead be concerned about the process of competition>>>>>>>>>LARGE SIZE PER SE NOT A PROBLEM!!! PARTICULARLY IN THE PRESENCE OF FREE TRADE...
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