Talk:Perfect competition

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I was hoping to find information on behavior of the firm in a perfectly competitive market, particularly w.r.t. costs and revenues. This is a topic I have had great difficulty integrating into my consciousness using standard textbooks on economics. I'm sure a Wikipedia article covering the same subject matter, if one were to exist, would be much more enlightening!

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I have removed:

Other examples include the stock market and foreign currency exchange.

Large pension funds, mutual funds and banks are not small actors without market power.

However I agree that these markets are closer to perfect competition than most. mydogategodshat 17:55, 18 Jan 2004 (UTC)


Hi Bluemoose, do you mean by "set by firms" that the firm's marginal cost will be the price? If so, I still think there is a better way to say it, becuase the monopolist "sets the price", not the small seller in a competitive market. Mgw 18:58, 22 Apr 2005 (UTC) ---

This article really needs a diagram to show perfect competition. I'll try and find one, but I'm not really sure what's copyright and whats not. It's possible to draw one, but you'd probably need a reasonably sophisticated program that wouldn't get scared when you tried to draw curves. Thanks Inebriatedonkey 28 June 2005 08:00 (UTC)

Contents

[edit] Examples

In Re Examples The first paragraph needs to go. Elasticity has nothing to do with perfect competition.

Plus, agriculture is closer to inelastic than elastic. Still learning the rules, will edit in a few days if I don't see objection.--Samadhi69 07:47, 5 February 2006 (UTC)

I took out the reference to elasticity. It actually does have to do with perfect competition (the fact that firms act as if they face perfectly elastic demand, or consumers face perfectly elastic supply, is sort of equivalent to the assumption of price taking) but not in the way that was implied by the sentence. As a side note, perhaps this article should note Vernon Smith's experiments which suggest that in practice one does not need a large number of perfectly informed agents for the result to look like a perfectly competitive equilibrium? radek 06:00, 6 March 2006 (UTC)


[edit] Request

Hello; does anyone know of a good text book on the subject of perfect competition? PJ 18:24, 11 February 2006 (UTC)

Well, to begin with, I suggest anybody to be very carefull with what is usually said, both the main books talking about and people criticizing it are saying lots of crap ! If you can, I suggest any kind of books from Bernard Guerrien. But most are in French... Maybe you can find some papers in English on the internet... —Preceding unsigned comment added by 82.240.32.93 (talk) 22:51, 27 September 2007 (UTC)

[edit] Sufficient but not necessary conditions

If by perfect competition one means 'price taking behavior' or 'p=mc' then the listed conditions are not necessary, just sufficient. A Bertrand market with two firms (so no atomicity or free entry) gets you those. Different technologies (costs) or information will give you limit pricing. It would be useful to have a more precise definition of what is meant by 'perfect competition' - Ostroy has a bunch of work on this, among many others.radek 02:29, 12 July 2006 (UTC)

[edit] these "five" conditions have nothing to do with perfect competition

Definition is inconsistentas first condition stipulates that firms are "price taker" and third condition that "All firms and consumers know the prices set by all firms" - so that firms "set prices". Only one question : if everybody is price taker, WHO set prices ? Mister Market ? That's nonsense. The main condition is that there is an "auctioneer" in the Walras mood, who set prices - agents believing' they can buy and sell all they want at this prices. Nothing to do with the "five conditions".

Answering your question about who set the price, I think it is the interaction of demand and supply who is responsible for this issue. Sheitan 14:56, 13 January 2007 (UTC)

Market forces set the market price, because all products are homogenous, market price is set for all firms where D=S, don't forget this is all hypothetical, as is the entire model, for example, we have to assume perfect knowledge of the market, which is never going to happen.Lukeitfc 19:36, 25 February 2007 (UTC)

It's really funny, here, in a tiny little space, a little piece of TRUTH completely immerged into an ocean of unbearable scientist bull***** ! "if everybody is price taker , who set the price ?" asked our friend... Naturally, where there are good questions, often follow good answers ! Hence, he answered the only correct answer : there is the walrasian "auctioneer", in other word, there is some kind of 'planificator' who play the role of proposing prices (who could say it is a model describing how decentralized markets work ??)

Now look at the answers given by out friends Sheitan and Lukeitfc in their try to fight against this (obviously disturbing) idea ! Prices are set by "Market forces" "interaction of demand and supply" ! How can people decide to answer back, how can they think their answers could be helpful in this debate with such incoherent and poor arguments ? I remind you that the first assumption you learn is that the people in this model CANNOT fix the prices (yes, it is why they are called pricetakers, amazing isn't it ?) Can the market be something else than the people constituting it ? Are the supply and demand something else than the aggregation of people offering and demanding quantities of goods for given prices ? Well, according to them, yes, because a mysterious forces can do things people can't do ! It can set prices ! Truly miraculous, isn't it ! How amazing, we thought we were doing economics, it finally appears we are doing magic ! If the only answer they can produce is to refer to some kind of supernatural phenomenon, why not market are ruled by God ?

So, to me, the important question, when you have understood all that, is why Sheitan and Lukitfc are able to think they can talk about a model they have never understood ? (this question helping us to understand why, in general, this model is still taught everywhere without being said that it is of no relevance to describe market economy...) Well, I often observed that people who were forced to accept ideas without understanding them are always the first to defend them afterwards... Actually, we could even thinkit is almost a general law for the human beings : it is like, the more they suffered to accept anykind of ideology, the more they spread it with the most extremist faith ! Godzilla.

Calm down, people, and sign your posts, please. What I am sure Sheitan and Lukeitfc meant was that firms are forced by their desire for maximizing profit to adapt to market conditions in a certain way, kind of like how certain conditions in a jungle would force people stranded in the jungle to make certain decisions to survive for as long as possible. This is a set of conditions influencing human behaviour, which is hardly a ridiculous idea at all. I would say the auctioneer idea is more ridiculous. Besides, the problem was never the validity of the model, but rather the validity of the definition, and the definition is perfectly valid. -Capefeather (talk) 01:01, 27 January 2008 (UTC)

[edit] Comparison with Free Software?

I can see a lot of similarities between perfect competition and free software. What are people's thoughts on this? — Yama 15:45, 21 April 2007 (UTC)

Can you be more specific because I can't see the similarities. Karina.l.k 09:42, 26 April 2007 (UTC)

[edit] This entire paragraph...

constitutes Original Research:

"To be exhaustive, note that some economists[1] do not agree with this presentation of the model of perfect competition. Many reasons are advanced, but one of the main is that it focuses on unnecessary conditions (atomicity, perfect information...) while it does not allow an answer to the question : "If agents are price-takers, who sets the prices ?" Indeed, in this model, as firms and consumers can not set the prices, it can't be—as it is often said (e.g. below)—that it is the firms who fix them. So, actually, there is a need for a benevolent agent who proposes prices to firms and consumers and fixes the ones at which exchange will occur. They also think that the argument that a global entity called "the market" could fix the prices, when its constituents (producers and consumers) can not is greatly disturbing[2]. Above other criticisms, there is also the lack of emphasis on the fact that no uncertainty about future prices or incomes, no transport cost, and no indivisibility can satisfactory integrated in this model because most of its positive results (such as the existence of a general equilibrium) can not be achieved anymore."

and, more so, is simply incorrect. First uncertainty can be incorporated into a perfectly competitive model. It can certainly be incorporated even into a general equilibrium model (what exactly is this paragraph criticizing, PC or GE?) - see the Theory of Incomplete Markets. More so, even with Incomplete Markets, general equilibrium still exists (though it is no longer PO). Likewise you can have transportation costs and indivisibility in perfectly competitive models. The key is that in all instances firms act as price takers, or ACT IF as if they're price takers. Which means that the question of "who sets the prices" is somewhat irrelevant. It is relevant in general equilibrium models. But you can have a Bertrand competition model where firms (as few as 2 of them) producing a homogeneous good SET prices that would prevail in a perfectly competitive market.

Unless this re-written and properly referenced I'm going to remove/rewrite this paragraph.radek (talk) —Preceding comment was added at 00:07, 16 December 2007 (UTC)

Agreed. DoneLarklight (talk) 18:21, 26 January 2008 (UTC)
Although now the following paragraph needs attention, I can't understand it. Larklight (talk) 18:26, 26 January 2008 (UTC)

[edit] All three references

are to criticisms and none to the subject that the article is actually about. Moreover, two of the references are to the same guy. That most economists haven't heard of, outside perhaps the post-Autistic folks. There's also editorializing and NPOV in the references. The whole article reads like someone with an axe to grind, but with very little knowledge, went through and inserted snips of misguided 'criticisms'.radek (talk) 00:14, 16 December 2007 (UTC)

[edit] Assumptions

This section is horrendously written and I'm not sure how to go about fixing it completely. -Capefeather (talk) 01:08, 27 January 2008 (UTC)