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Chp 17 : The Neoclassical School- The Departure from Pure Competition…
Chp 17 : The Neoclassical School- The Departure from Pure Competition
Departure From Pure Competition
Interest in imperfect competition arose bcs of the
gap in economic theory
between the
pure models of competition and monopoly.
Pure competition applied fully to agriculture but even that the theory was becoming
less suitable to modern conditions
The theory of monopolistic competition came in between 2 extremes of
pure competition and monopoly
This new ideas were fully developed by Edward Chaberlain in USA
Piero Sraffa
A leading member of the Post- Keynesian and was a
critic of neoclassicism
However, his earlier work was within the
tradiion of neoclassical
and he produced important work in
criticazing the theory of pure competition
An italian who migrated to England and taught at Cambridge University
His article pointed out how as
firm become increasingly efficient, its size increase, there will be fewer firm and less competition
and this can lead to
natural monopoly.
Sraffa presented a well-defined theory but both
pure competition and natural monopoly are extreme cases.
His article created an outburst of
thinking abt the shortcomings of current economic
theory
Edward Hastings Chamberlin
His book fused the separate
theories of monopoly and competitio
n, and it explained a
range of market situations that are neither purely competitive nor total monopolistic
.
Most market prices are actually
determined
by both
monopolistic and competitive element
s
He published
*The Theory of Monopolistic Competition
*in 1933
Chamberlin held
market prices
are actually
determined by both monopolistic and competitive elements
Joan Robinson
Her book,
The Economics of Imperfect Competition
was published a few months after Chamberlin's covers substantially the same ground
Monopsony
- a situation in which there is either a single buyer in a market or group of buyers acting as one.
She was student of Alfred Marshall
Product-market monoposony
2 generalization
Under pure competition, the
buyer will purchase successive units of goods
at any time up to the point where
P=MU
Under monopsony, the
buyer wil regulate purchases in such a way that the MC to him
(different from the MC of production) is equal to marginal utility (MC = MU)
Resource-market monoposony
The contemporary graphical representation of labor market monopsony derived from
Robinson's presentation
She concluded
Labor market monopsonist will
employ fewer workers than would be hired by employers competing with one another
for workers.
Monoposonist reduces employment to avoid driving up the wage it must pay to all workers.
Under monopsonist
worker is exploited