Profit maximization, industry structure, and competition : a critique of neoclassical theory

Steve Keen; Russell K. Standish

Profit maximization, industry structure, and competition : a critique of neoclassical theory

Steve Keen, Russell K. Standish

Research output: Contribution to journal › Article

20 Citations (Scopus)

Abstract

Neoclassical economics has two theories of competition between profit-maximizing firmsÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬ÂMarshallian and CournotÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Å“NashÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Âthat start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

Original language	English
Number of pages	4
Journal	Physica A
Publication status	Published - 2006

Keywords

CournotÃ¢â‚¬â€œNash game theory
competition
microeconomics
monopoly
oligopoly
profit maximization

Cite this

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title = "Profit maximization, industry structure, and competition : a critique of neoclassical theory",

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keywords = "Cournot{\~A}¢{\^a}‚¬{\^a}€{\oe}Nash game theory, competition, microeconomics, monopoly, oligopoly, profit maximization",

author = "Steve Keen and Standish, {Russell K.}",

year = "2006",

language = "English",

journal = "Physica A",

issn = "0378-4371",

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T1 - Profit maximization, industry structure, and competition : a critique of neoclassical theory

AU - Keen, Steve

AU - Standish, Russell K.

PY - 2006

Y1 - 2006

N2 - Neoclassical economics has two theories of competition between profit-maximizing firmsÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬ÂMarshallian and CournotÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Å“NashÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Âthat start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

AB - Neoclassical economics has two theories of competition between profit-maximizing firmsÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬ÂMarshallian and CournotÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Å“NashÃƒÂ¢Ã¢"šÂ¬Ã¢â‚¬Âthat start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

KW - CournotÃ¢â‚¬â€œNash game theory

KW - competition

KW - microeconomics

KW - monopoly

KW - oligopoly

KW - profit maximization

UR - http://handle.uws.edu.au:8081/1959.7/10429

M3 - Article

SN - 0378-4371

JO - Physica A

JF - Physica A

ER -

Profit maximization, industry structure, and competition : a critique of neoclassical theory

Abstract

Keywords

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