Profit maximization, industry structure, and competition: A critique of neoclassical theory

Keen, Steve and Standish, Russell (2006) Profit maximization, industry structure, and competition: A critique of neoclassical theory. Physica A: Statistical Mechanics and its Applications, 370(1), pp. 81-85. ISSN (online) 1873-2119

Official URL: http://dx.doi.org/doi:10.1016/j.physa.2006.04.032

Abstract

Neoclassical economics has two theories of competition between profit-maximizing firms--Marshallian and Cournot-Nash--that start from different premises about the degree of strategic interaction between firms, yet reach the same result, that market price falls as the number of firms in an industry increases. The Marshallian argument is strictly false. We integrate the different premises, and establish that the optimal level of strategic interaction between competing firms is zero. Simulations support our analysis and reveal intriguing emergent behaviors.

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