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The Persistence of Profits

In: Profits, Deficits and Instability

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  • Dennis C. Mueller

Abstract

Two views about competition exist. The first sees competition as a process for allocating resources to their optimal uses. The price mechanism is the instrument for achieving this goal, and when it functions properly equilibria emerge with prices equated to marginal social costs of production. When it malfunctions, equilibria exist with some prices above marginal costs, and society suffers a welfare loss from the under-consumption of these goods. Such malfunctions are usually attributed to an insufficient number of buyers or sellers. Monopoly is seen as the antithesis of competition. Thus, under the first view, competition is seen as a process for determining prices and quantities, the allocation of resources for a given set of tastes and technological opportunities. At its zenith, competition produces an equilibrium set of prices which induce a Pareto optimal allocation of the economy’s goods and services. Such equilibria are anticipated so long as monopolistic elements are absent.

Suggested Citation

  • Dennis C. Mueller, 1992. "The Persistence of Profits," Palgrave Macmillan Books, in: Profits, Deficits and Instability, chapter 6, pages 82-102, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11786-4_6
    DOI: 10.1007/978-1-349-11786-4_6
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    Cited by:

    1. Eleonora Bartoloni & Maurizio Baussola, 2018. "Driving business performance: innovation complementarities and persistence patterns," Industry and Innovation, Taylor & Francis Journals, vol. 25(5), pages 505-525, May.

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