Optimality

Abstract

Theoretical work on the optimality of perfect competition has been so extensive that, despite the well-known deviations of perfect competition from optimality, there is a strong predisposition among economists to assume that any move away from perfect competition is a move away from an ideal state. Our suggestion that the only kinds of competition that can exist in practice are semi-perfect or fixprice competition will be likely, therefore, to attract the immediate criticism that such models imply a fall from grace. But, before we accept that conclusion, we need to consider two important questions: (1) to what extent can perfect competition be accurately described as an ideal state? (2) what are the positive and negative features, from a welfare point of view, of the alternative forms of competition described above?