Re: Keynes and competition

[PHILIPPE BURGER <mwburgph@xxxxxxxxxx>]

Kazuhiro,

I think one needs to remember that although the demand curve for the firm is
horizontal, the demand curve of the industry is not.  Thus, it is not the
demand for the output of a small company, which is insignificant seen
against the whole, that is relevant, but the industry demand.  In addition,
the company would not want to produce more than the quantity determined by
the point where his marginal revenue and cost are equal.  Thus, even if the
company could expect to sell everything it produces at the going market
price, it would not want to.

By arguing that a flat demand curve means that you can sell everything you
produce and therefore, must rely on imperfect competition, reintroduces
Say's law through the backdoor.  It also weakens Keynes' idea that the
reason for a lack of employment is a lack of investment.  If the problem
merely was one of imperfect competition we should just sharpen our
anti-trust laws everytime a recession sets in.  I don't think that is what
Keynes had in mind.  The Great Depression was not so much a problem of
monopolism as one of a lack of confidence.

Best wishes,
Philippe

----- Original Message -----
From: Kazuhiro Kurose <kurose@xxxxxxxxxxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, May 21, 2001 8:46 AM
Subject: Keynes and competition


> Davidson has been insisting that the existence of involuntary unemployment
> has nothing to do with the assumption whether the economy is the perfect
> competition or the imperfect one. This means that the principle of
effective
> demand is still valid even if we are in the perfect competition world.
> However, those, whom I should call the new Keyensian such as Clower or T.
> Negishi, emphasized the importance of the imperfect competition. According
> to them, the perfect competition means that the individual (not aggregate)
> demand curve is flat, and then the capitalists expect that they could sell
> the goods whatever they want. But there are no demand constraints in this
> circumstance. Therefore, they thought that there is disequilibrium in the
> goods market at Keynes' system, and it is plausible for them to assume the
> imperfect competition.
>
> What would you think about the new Keynesian thought like this?
> I think that the judgment on whether Keynes' system is perfect competition
> or imperfect one depends upon the judgment on whether there is
> disequilibrium in goods market or not. It is obvious that the new
Keynesian
> thought that there is disequilibrium in goods market. What do you think
> about this opinion?
>
> **************************************
>   Kazuhiro Kurose
>   Graduate School of Economics and Business
>   Administration, Hokkaido University
>   Kita 9 Nishi 7, Kita-Ku, Sapporo, Japan
>   060-0809
>     TEL: +81-11-716-2111 ex:2786
>  **************************************
>