Insights from Harold Demsetz
I start with the "monopoly model" of a firm with downward sloping demand, choosing price such that MC=MR, and treating "price taking" as a special case. Then I do "competitive markets," teaching both perfect competition and monopolitic competition, with free entry driving profits to zero as the driving feature of both. Then later I talk about barriers to entry and deadweight loss. (This isn't 101 though, it's a second class more like intermediate micro.)
Agree with your comments. The biases remain. In the approach of the discipline and it is maintained from years to years, from one generation to another...
A old history..
Then, it is difficult correct the biased view in Economics and this involve even the choices respect to the public policies, which is the typical conflict zone, from different person.
Our science. Although lost during the decades the adjective politics, remain a influenced from the political vision.
Just so you know, I started econ this year (in Spain) and the teacher actually used that last framing you mentioned (price-setters vs. price-takers) to explain the difference between competitive and monopoly markets. I guess I was lucky.
This took me back decades to my first economics classes. I'm saddened but not really surprised that they are still teaching these outdated models. Even in 1981, I knew that perfect competition, static models, and SCP were worse than unhelpful. But that's because before my first economics class I had been reading Armen Alchian, Israel Kurzner, and others. Thanks for an excellent post on the topic.
Would everything be solved if we reframed our structural assumption as behavioral ones? Rather than say, "there are many buyers and sellers," we should say, "firms/consumers behave as price takers." And replace, "there is a monopolist" with "firms affect prices."
I'm reminded of the Mark Blaug quote which went something like: "the purpose of studying perfect competition is to generate an endless series of exam questions."
That is an excelent text, congrats on that.
Actually, I am a new assistant professor in Brazil, having finished my PhD one year ago.
I am about to teach a module on IO for undergrads (which have gone through three modules on microeconomics covering basicly everything on traditional textbooks, from consumer choice to market failures, going thorugh firm, partical equilibrium, general equilibrium, etc)
Mos of my colleagues are seniors which are used to older IO textbooks (Tirole, Carlton & Perloff, Scherer & Ross, etc) but I wanted to undertake a fresh approach on IO, any reccomendations?
Once again, great text!
Thank you. Well written. Is Joan Robinson really fully part of the SCP school? The introduction to her “Economics of Imperfect Competition” and chapter 27, are very strongly at odds to the classic binary analysis of monopoly and perfect competition. “We only have to take the word monopoly in its literal sense, a single seller, and the analysis of monopoly immediately swallows up the analysis of competition.”