The Theory of Competitive Markets | Rethinking Market Regulation: Helping Labor by Overcoming Economic Myths (2024)

Rethinking Market Regulation: Helping Labor by Overcoming Economic Myths

John N. Drobak

Published:

2021

Online ISBN:

9780197578988

Print ISBN:

9780197578957

Contents

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Rethinking Market Regulation: Helping Labor by Overcoming Economic Myths

John N. Drobak

Chapter

John N. Drobak

John N. Drobak

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Oxford Academic

Pages

15–22

  • Published:

    June 2021

Cite

Drobak, John N., 'The Theory of Competitive Markets', Rethinking Market Regulation: Helping Labor by Overcoming Economic Myths (New York, 2021; online edn, Oxford Academic, 17 June 2021), https://doi.org/10.1093/oso/9780197578957.003.0002, accessed 24 July 2024.

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Abstract

Chapter 2 explains how the theory of competitive markets became the benchmark for economic analysis, implicitly leading to the assumption that firms actually compete in real-world markets rather than acting as oligopolies. The chapter begins by showing how competition theoretically maximizes resource allocation and constrains the behavior of firms. Then it analyzes the assumptions that underlie the theory, emphasizing the problems that stem from the assumption of consumer sovereignty and the ability of producers to manipulate consumer preferences. It also explains how the assumption that markets are competitive became the paradigm of economic education, as advocated by Alfred Marshall, rather than recognizing the prevalence of monopolies and oligopolies, as advocated by Marshall’s successor, Joan Robinson. Finally, the chapter shows how the assumption that real-world markets are competitive is used to justify opposition to government regulation, based on the notion that competition already provides the only necessary constraints.

Keywords: competitive markets, consumer preferences, consumer sovereignty, oligopoly, resource allocation, Alfred Marshall, Joan Robinson

Subject

Competition Law

Collection: Oxford Scholarship Online

Rethinking Market Regulation. John N. Drobak, Oxford University Press.© Oxford University Press 2021. DOI: 10.1093/oso/9780197578957.003.0002

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