Comparing Austrian and Post-Keynesian Criticisms of the Neoclassical View of Competition

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The competitive process is fundamental in economics, although it is extremely difficult to define under a universal definition due to the various views laid down by different theories. While the standard theory concentrates on market structure and strategic behaviour, the Austrian School focuses on market dynamics and entrepreneurship whilst the post- Keynesian school directs its attention to the areas surrounding dominant firms and administered prices. This essay will attempt to compare and contrast Austrian and post-Keynesian criticism of the standard neoclassical view of the competitive process.

‘The neoclassical theory of the firm considers four main theoretical market structures: perfect competition, monopolistic competition, oligopoly and monopoly.’ (Lipczynski, Goddard and Wilson, 2001) According to Lipczynski (2001)‘the models of perfect competition, monopoly and monopolistic competition describe how firms should set their output levels and prices in order to maximize their profits, under various sets of assumptions concerning market structure.’ Regarding the competitive process, the neoclassical theory of the firm and the ‘analysis of competition in the theory is contained in the model of perfect competition, which describes the ideal conditions that must hold in the market to ensure the existence of perfectly competitive behaviour from the typical firm and, by extension, the characterisation of the industry as competitive or not.’ (Tsoulfidis, 2011) Additionally, in standard theory, all observed market structures could be compared to the perfectly competitive equilibrium and outcome.

Perfect competition involves large numbers of buyers and sellers and products sold have to be identical, with the firms’ intention to ma...

... middle of paper ...

...to outdo each other to become dominant firms in the market.

Works Cited

Block, W., 1977. Austrian Monopoly Theory - A Critique, Journal of Libertarian Studies, 1(4) p.271.

Baumol, W. and Blinder, A., 1979. Economics: Principles and Policy, California: Harcourt Brace Jovanovich.

Davidson, P., 1991. Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective, The Journal of Economic Perspectives, 6 (1) p.131.

Sawyer, M., 1990, On the Post-Keynesian Tradition and Industrial Economics, Review of Political Economy, 2 (1) p.44.

Lipzynski, J., Wilson, J., and Goddard, J., 2001. Industrial Organisation: Competition, Strategy and Policy, London: Pearson Education Limited

Kirzner, I., 1973. Competition and Entrepreneurship, Chicago: University of Chicago Press

Mises, L., 1949, Human Action: A Treatise on Economics, Yale: Yale University Press

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