By Dominich Armentano

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Sample text

The ex­ planation begins with the observation that under imperfectly competitive conditions, firms have some control over the prices of their products. This control may stem from the fact that the commodities being produced by sup­ pliers are differentiated, or that market knowledge is not perfect, or that firms are colluding to restrict production. Differentiation of product, imperfect knowledge, and collusion are the primary ingredients of imperfectly competi­ tive situations. For instance, if products are differentiated, individual sellers discover that the demand curve for their own product is downward sloping and not hori­ zontal, and that they will not lose all of their customers with a price slightly higher than a competitor’s.

If, for example, monopoly power established through collusion or horizontal merger threatens to reduce output and increase prices, resources would be misallocated and so­ cial welfare would be reduced (as explained above). The triangle area ABC in Figure 5 is said to represent the deadweight welfare-loss associated with a re­ striction of output from Q C to Q M . Or, alternatively if antitrust policy could prevent or end such output restrictions, it could increase social welfare by improving the allocation of scarce economic resources.

It would appear th at even the best and m ost reasonable neoclassical analysis is m ired in a serious m eth o d ­ ological difficulty. An Alternative Theory of Efficiency A very different perspective on eco n o m ic efficiency and resource allocation can be developed directly from a strict su bjectivist approach to cost and u til­ ity. T h is approach would hold th at individual hum an actio n is purposeful and aim s at accom p lishing selected ends by adopting patterns of resource use (plans) con sisten t with those ends.

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