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News Assuming perfect competition

  1. Oct 17, 2005 #1
    Assuming perfect competition in neoclassical economics:

    * The principle remains that any business which makes more profit than another will have an increased chance of expanding additionally by using that profit. This, in turn leads them to better chances of larger profits. So, what is to stop one, or a few, companies from eventually reating an oligarchy or monopoly within any given, but also specifically high cost, industries?

    * What is to stop a corporation, or coalition of, from gaining sufficient influence in a civilian government to start a war for economic profit?

    * Would a person who, at any point in their life, possessed less material wealth than another have less options for class mobility?

    * Would a person who possessed less material wealth than most or the rest of society have less or limited freedom of mobility (assuming privatization of roads, ect), right to legal representation (privatization of legal council), security of person (privatisation of healthcare and/or security), right to "pursuit of happiness" (privatization of education and/or healthcare, ect) than experienced by those of wealthier standing?

    I'd appreciate really detailed explanations as if I knew nothing about politics or economics (which, judging from you capitalists' opinions of me, shouldn't be hard).
  2. jcsd
  3. Oct 17, 2005 #2


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    Staff: Mentor

    You mean in a "pure" capitalist society, without the modifications to the system most existing ones have? For example:
    In a pure capitalist system, nothing. In the system we have - The Sherman Act.
  4. Oct 17, 2005 #3
    I think he does, In a "Perfect competion" senario you wouldnt have these problems. These problems are deeply rooted in capitalism...
  5. Oct 17, 2005 #4
    I mean in a "pure" neoclassical economics sense. Call that capitalism if you want.
  6. Oct 17, 2005 #5
    Perfect competition:

    A market structure in which there are many firms; each firm sells an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are completely informed about the price of each firm’s product

    That isnt what happens in Capitalism, and in fact would probably collapse a capitalistic economy
    Last edited: Oct 17, 2005
  7. Oct 17, 2005 #6


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    Staff Emeritus
    Gold Member

    It's only a model, but there are markets that closely emulate pure competition. The usual example used in GE-level economics courses is the grain market.

    If we're actually going to assume pure competition, though, smurf, a monopoly, or oligopoly is completely impossible. As soon as there are profits to be made, new firms will enter the market and take those profits until there are no more profits to be had and every firm does nothing but break even over the long term.

    Basically, this is what, in theory, prevents monopolies and oligopolies from forming in most markets, whether or not the competition is truly pure. Many markets - say, music or book publishing - require intellectual property rights laws to protect entry into the market, otherwise there would be pure competition. There are examples of markets, such as the automobile industry or airline industry, where the upfront costs of starting a new firm are so high that entry into the market is protected by that alone, and these markets naturally support oligopolies, in which case we require anti-collusion laws to prevent them from price fixing and such. In these cases, competition amongst the few firms that exist is the best we can hope for (although we have seen relatively many new entries as the difficulty in entering the market does eventually alleviate somewhat over time).
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