Portal:Business/Selected quote/61

''"In all of the fields where individual products have even the slightest element of uniqueness, competition bears but faint resemblance to the pure competition of a highly organized market for a homogeneous product. Consider, for instance, the competitive analysis as applied to the automobile industry. How is one to conceive of demand and supply curves for "automobiles in general" when, owing to variations in quality, design, and type, the prices of individual units range from several hundred to many thousand of dollars? How define the number of units which would be taken from or put upon the market at any particular price? How fit into the analysis a wide variety of costs based mostly upon a correspondingly wide variety of product? These difficulties are great; perhaps they are not insurmountable. The real one is neither of definition nor of interpretation, and cannot be surmounted. Competitive theory does not fit because competition between through the group is only partial and is highly uneven. The competition between sport roadsters and ten-ton trucks must be virtually zero; and there is probably more justification for drawing up a joint demand schedule for Fords and house room than for Fords and Locomobiles. These are, perhaps, extreme cases, but the fact that each producer through the group has a market at a least partially distinct from those of the others introduces forces, absent under pure competition, which materially alter the result. Prices throughout are adjusted in some measure according to the monopoly principle. Furthermore, advertising and selling outlays are invited by the fact that the market of each seller is limited, whereas the very nature of a purely competitive market precludes a selling problem. The theory of pure competition, in explaining the adjustment of economic forces in such an industry, is a complete misfit.''

''Because most prices involve monopoly elements, it is monopolistic competition that most people think of in connection with the simple word "competition". In fact, it may almost be said that under pure competition the buyers and sellers do not really compete in the sense in which the word is currently used. One never hears of "competition" in connection with the great markets, and the phrases "price cutting", "underselling", "unfair competition", "meeting competition", "securing a market", etc., are unknown. No wonder the principles of such a market seem so unreal when applied to the "business" world where these terms have meaning. They are based on the supposition that each seller accepts the market price and can dispose of his entire supply without materially affecting it. Thus there is no problem of choosing a price policy, no problem of adapting the product more exactly to the buyers (real or fancied) wants. The theory of pure competition could hardly be expected to fit facts so far different from its assumptions. But there is no reason why a theory of value cannot be formulated which will fit them - a theory concerning itself specifically with goods which are not homogeneous. This is the purpose of the later chapters of this book. We turn first to the theory of pure competition."''


 * &mdash;Edward Chamberlin, The Theory of Monopolistic Competition, 1933

...Archive More… Suggest