The Theory of Imperfect Competition

The Theory of Imperfect Competition

The importance which Marshall attributed to competition as a regulator of the market and a determinant of price was not shared by all of his followers. Marshall's influence over half a century cannot be denied, but in recent years new and challenging ideas have been presented. The recent trend in economic thought is unquestionably toward the analysis of exchange under conditions of monopoly and imperfect competition. It was not the challenge of greater minds, but the force of actual conditions which turned the attention of economists away from Marshall's ideas of a com­petitive market, toward the uncertainties of the controlled mar­ket. The selling of goods is such an integral part of large scale production that business cannot afford to trust the control of a freely competitive market. Consequently tremendous efforts have been made to devise methods of maximizing money value of sales and guaranteeing an adequate market. Devices such as class price, and the use of advertising to break down consumer indif­ference, as in trade names, are now commonplace. It is difficult to see how one could hold to a belief in a freely competitive mar­ket in the face of such developments. Titles such as E. Chamber-lin's The Theory of Monopolistic Competition, and J. Robin­son's The Economics of Imperfect Competition, are indicative of the recent trend. Briefly, the new line of investigation abandons the assumption of competition as a regulator of the market through the forces of supply and demand; instead it attempts to analyze the effective methods of control of the market now in practice, usually expressing the results of such control in quanti­tative terms. The emphasis placed upon mathematical formulae can be traced to the influence of Walras and the Italian econ­omist Pareto (Walras' successor at the University of Lausanne) and to a revival of interest in the work of Cournot.

The goal of the newer school of economic thought is to estab­lish a theory of price determination which will be applicable for both competitive and non-competitive markets. The initial formulations of the new doctrine were derived from an analysis of prices in monopoly markets, hence it was necessary only to expand the scope of the analysis so as to include a greater number of sellers while continuing to use exactly the same assumptions and methods. Authorities seem to agree on the practical success of the new departure and although little has been written con­cerning the theory of imperfect competition in recent years there is little doubt of its importance to economic thought.