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Journal of Economic Literature: Vol. 39 No. 2 (June 2001)

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Perfect Competition and the Creativity of the Market

Article Citation

Makowski, Louis, and Joseph M. Ostroy. 2001. "Perfect Competition and the Creativity of the Market." Journal of Economic Literature, 39(2): 479-535.

DOI: 10.1257/jel.39.2.479

Abstract

From the perspective of the Walrasian general equilibrium model, entrepreneurial and opportunistic behavior seems foreign. Can the model be refashioned so that it can accommodate such behavior? Many would say no, but we argue the contrary. Indeed, we present a reformulation of the model that serves as a gateway to, rather than a detour from, such contemporary issues as innovation and incentives. The trick is to reexamine what perfect competition means. Starting with an historical summary of general equilibrium, we sketch an image of the perfect competitor as an active market opportunist, seeking out profit potentials wherever he can.

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Authors

Makowski, Louis (U CA, Davis)
Ostroy, Joseph M. (UCLA)

JEL Classifications

D41: Market Structure and Pricing: Perfect Competition
O31: Innovation and Invention: Processes and Incentives
D83: Search; Learning; Information and Knowledge; Communication; Belief
D82: Asymmetric and Private Information
D51: Exchange and Production Economies


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