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Friday, October 28, 2005

Comments

Tim Worstall

Why is this so surprising? Every businessman in the world spends his entire time trying to differentiate his product so as to be able to price monopolistically. What doesanyone think branding or advertising budgets are for?

AJE

"Time to start revising those textbooks, I'd say."

Defo. Let's start using the word "entrepreneurship", and view the market as a process.

Angry Economist

But if you read some textbooks specifically on public sector economics, and the economics of market failure they always say "in reality, markets rarely function perfectly". As we know, there are not so many examples of PC markets. Most markets work imperfectly - information asymmetries, monopolies, externalities, temporal lags in market/price adjustments etc. The big question is, is their imperfectness a big big problem or issue, or is it at an acceptable level? and then, can we do anything about it if it is a problem?

Not so much a case of rewriting text books but referring to the right ones...

AJE

"The big question is, is their imperfectness a big big problem or issue, or is it at an acceptable level? and then, can we do anything about it if it is a problem?"

Bullshit - the question should be "do I have the right model?"

What is a "perfectly functioning market" - according to your theory it's one without any trading. That should strike anyone with half a brain as being nonsense. Perfect competition was never intended to be a realisable goal: it's a thought experiment, utterly unattainable and thankfully so.

I think a far better way of viewing an economy is as a system of exchange, and the institutions through which exchange occurs, rather than a giant machine susceptable to the will of Mr Central Planner.

Angry Economist

AJE,

Well I agree with you to some degree for what its worth. In government thinking, and policy making we are landed with an idealised perfectly competitive model, especially in the way the government thinks about the world, and as you say, the PC market model is very flawed.

Many market Failure theories et all deal with this, but most tend to deal with this still within the classical model or PC market model.

As for the rest of your comments about my theory, me being Mr. Central Planner etc, your putting words into my mouth there or reading between lines that don't exist. I really view market models as imperfect tools for understanding how the economy works or doesn't. No different to most sensible economists I'll bet. I don't put so much stock in them as to remove common sense from operating from my full or half brain as you put it.

My big point is that ok, markets don't work to perfectly competitive ideals (which is pretty obvious to me with even my half brain), but then the big question is so what? in extreme cases, governments might want to do something about it, where they can. Or as you say, the response, if designed on PC market models, might be flawed anyway.

Fyfel Moon-Cusit

A world without perfect competition would make it very difficult to give homework assignments to first year econ students. Those simultaneous equations just wouldn't make sense, otherwise.

Out of compassion for econ professors the world over I'm launching a "Keep Competition Perfect" campaign. You lot are sacrificing legant mathematical style for imagined real world phenomena. Pull yourselves together *slap*

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